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The Effect of Exit Time and Entropy on Asset Performance Evaluation

The objective of this study is to evaluate assets’ performance by considering the exit time within the risk measurement framework alongside Shannon entropy and, alternatively, excluding these factors, which can be used to create a portfolio aligned with short- or long-term objectives. This portfolio...

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Autores principales: Ghasemi Doudkanlou, Mohammad, Chandro, Prokash, Banihashemi, Shokoofeh
Formato: Online Artículo Texto
Lenguaje:English
Publicado: MDPI 2023
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10528300/
https://www.ncbi.nlm.nih.gov/pubmed/37761551
http://dx.doi.org/10.3390/e25091252
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author Ghasemi Doudkanlou, Mohammad
Chandro, Prokash
Banihashemi, Shokoofeh
author_facet Ghasemi Doudkanlou, Mohammad
Chandro, Prokash
Banihashemi, Shokoofeh
author_sort Ghasemi Doudkanlou, Mohammad
collection PubMed
description The objective of this study is to evaluate assets’ performance by considering the exit time within the risk measurement framework alongside Shannon entropy and, alternatively, excluding these factors, which can be used to create a portfolio aligned with short- or long-term objectives. This portfolio effectively balances the potential risks and returns, guiding investors to make decisions that are in line with their financial goals. To assess the performance, we used data envelopment analysis (DEA), whereby we utilized the risk measure as an input and the mean return as an output. The stop point probability–CVaR (SPP-CVaR) was the risk measurement used when considering the exit time. We calculated the SPP-CVaR by converting the risk-neutral density to the real-world density, calibrating the parameters, running simulations for price paths, setting the stop-profit points, determining the exit times, and calculating the SPP-CVaR for each stop-profit point. To account for negative data and to incorporate the exit time, we have proposed a model that integrates the mean return and SPP-CVaR, utilizing DEA. The resulting inefficiency scores of this model were compared with those of the mean-CVaR model, which calculates the risk across the entire time horizon and does not take the exit time and Shannon entropy into account. To accomplish this, an analysis was conducted on a portfolio that included a variety of stocks, cryptocurrencies, commodities, and precious metals. The empirical application demonstrated the enhancement of asset selection for both short-term and long-term investments through the combined use of Shannon entropy and the exit time.
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spelling pubmed-105283002023-09-28 The Effect of Exit Time and Entropy on Asset Performance Evaluation Ghasemi Doudkanlou, Mohammad Chandro, Prokash Banihashemi, Shokoofeh Entropy (Basel) Article The objective of this study is to evaluate assets’ performance by considering the exit time within the risk measurement framework alongside Shannon entropy and, alternatively, excluding these factors, which can be used to create a portfolio aligned with short- or long-term objectives. This portfolio effectively balances the potential risks and returns, guiding investors to make decisions that are in line with their financial goals. To assess the performance, we used data envelopment analysis (DEA), whereby we utilized the risk measure as an input and the mean return as an output. The stop point probability–CVaR (SPP-CVaR) was the risk measurement used when considering the exit time. We calculated the SPP-CVaR by converting the risk-neutral density to the real-world density, calibrating the parameters, running simulations for price paths, setting the stop-profit points, determining the exit times, and calculating the SPP-CVaR for each stop-profit point. To account for negative data and to incorporate the exit time, we have proposed a model that integrates the mean return and SPP-CVaR, utilizing DEA. The resulting inefficiency scores of this model were compared with those of the mean-CVaR model, which calculates the risk across the entire time horizon and does not take the exit time and Shannon entropy into account. To accomplish this, an analysis was conducted on a portfolio that included a variety of stocks, cryptocurrencies, commodities, and precious metals. The empirical application demonstrated the enhancement of asset selection for both short-term and long-term investments through the combined use of Shannon entropy and the exit time. MDPI 2023-08-23 /pmc/articles/PMC10528300/ /pubmed/37761551 http://dx.doi.org/10.3390/e25091252 Text en © 2023 by the authors. https://creativecommons.org/licenses/by/4.0/Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
spellingShingle Article
Ghasemi Doudkanlou, Mohammad
Chandro, Prokash
Banihashemi, Shokoofeh
The Effect of Exit Time and Entropy on Asset Performance Evaluation
title The Effect of Exit Time and Entropy on Asset Performance Evaluation
title_full The Effect of Exit Time and Entropy on Asset Performance Evaluation
title_fullStr The Effect of Exit Time and Entropy on Asset Performance Evaluation
title_full_unstemmed The Effect of Exit Time and Entropy on Asset Performance Evaluation
title_short The Effect of Exit Time and Entropy on Asset Performance Evaluation
title_sort effect of exit time and entropy on asset performance evaluation
topic Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10528300/
https://www.ncbi.nlm.nih.gov/pubmed/37761551
http://dx.doi.org/10.3390/e25091252
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