Copula Models for Equity Portfolio Risk Estimation: A Case Study of Nairobi Securities Exchange
Maina Stanley Muchiri,
Mung’atu Joseph Kyalo,
Wanjoya Antony Kibera
Issue:
Volume 7, Issue 3, September 2021
Pages:
72-77
Received:
31 July 2021
Accepted:
12 August 2021
Published:
23 August 2021
Abstract: Mitigation of risk in a security-trading environment is one of the strategies that every investor would want. Stock prices keep on changing from time to time and it is difficult for participants to predict share price direction. It is therefore appropriate for any trader to use the risk minimization strategies. One of the strategies is to estimate the amount of money a trader is willing to lose in a given period. This project uses the concept of copula to describe the dependency structure of portfolio returns selected from the Nairobi Securities Exchange. The Copula concept works towards modeling the dependency structure of high volatile data by separating the univariate distribution of their respective marginals. Dependencies in a volatile data enables one to assess the relationship that appears in the extreme values of historically sampled data. The study started with selecting an optimal portfolio from the Nairobi Securities Exchange using the Capital Asset and Pricing Model. The chosen optimal portfolio involved companies from different sectors, thus implying minimization of unsystematic risk. The next step involved estimating the systematic risk based on the historical data of the optimal portfolio selected. Different types of copula-based models were fitted then compared to each other to assess the dependencies measures, the goodness of fit of the model, and backtest of the Value-at-Risk. The main findings were that the Tawn type 1 copula was the best copula-based model for modeling the dependence structure of the portfolio returns. Additionally, the backtesting results also show that this model had the highest coverage of the exceedances.
Abstract: Mitigation of risk in a security-trading environment is one of the strategies that every investor would want. Stock prices keep on changing from time to time and it is difficult for participants to predict share price direction. It is therefore appropriate for any trader to use the risk minimization strategies. One of the strategies is to estimate ...
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Parametric and Nonparametric Tests: A Brief Review
Banda Gerald,
Tailoka Frank Patson
Issue:
Volume 7, Issue 3, September 2021
Pages:
78-82
Received:
2 April 2021
Accepted:
15 April 2021
Published:
28 October 2021
Abstract: Context: Statistics is the cornerstone of markets, businesses, policy makers and other sectors that require analysis and interpretation of data. From generation-to-generation, statistics has proved useful in everyday life, not only that it helps improving the quality of life through counting and record keeping, but it also allows people to predict the future events and to make their own analysis. Before making a conclusion, data should be collected, analysed and interpreted. Evidence Acquisition: In this study, the paper reviewed parametric and nonparametric tests. Researchers sampled some articles where parametric and nonparametric tests were used without considering assumptions. Results: In this study, researchers provided a review of parametric tests; namely, independent sample t-test and dependent sample t-test, and nonparametric tests; namely, Mann-Whitney U test and Wilcoxon signed-rank test. The formulae for calculating parametric and nonparametric tests have been provided in the study. Procedures on how to conduct Mann-Whitney U test and Wilcoxon signed-rank test in SPSS have been written in this article. Test of normality has been discussed in brief as a key component in analysing parametric and nonparametric tests. Conclusions: Most of the studies that have been carried out have not been considering assumptions when analysing data using either parametric tests or nonparametric tests. This study looked at parametric and nonparametric tests. In parametric tests, the paper looked at independent and dependent sample t-test, while in nonparametric test, the paper looked at Mann-Whitney U test and Wilcoxon signed-rank test.
Abstract: Context: Statistics is the cornerstone of markets, businesses, policy makers and other sectors that require analysis and interpretation of data. From generation-to-generation, statistics has proved useful in everyday life, not only that it helps improving the quality of life through counting and record keeping, but it also allows people to predict ...
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