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Entropy-based financial asset pricing: Evidence from Pakistan
Entropy is an alternative measure to calculate the risk, simplify the portfolios and equity risk premium. It has higher explanatory power than capital asset price model (CAPM) beta. The comparison of Entropy and CAPM beta provide in depth analysis about the explanatory power of the model that in tur...
Autores principales: | , , , , |
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Formato: | Online Artículo Texto |
Lenguaje: | English |
Publicado: |
Public Library of Science
2022
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Materias: | |
Acceso en línea: | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9778568/ https://www.ncbi.nlm.nih.gov/pubmed/36548250 http://dx.doi.org/10.1371/journal.pone.0278236 |
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author | Wang, Sheng Khan, Sher Ali Munir, Mubbasher Alhajj, Reda Khan, Yousaf Ali |
author_facet | Wang, Sheng Khan, Sher Ali Munir, Mubbasher Alhajj, Reda Khan, Yousaf Ali |
author_sort | Wang, Sheng |
collection | PubMed |
description | Entropy is an alternative measure to calculate the risk, simplify the portfolios and equity risk premium. It has higher explanatory power than capital asset price model (CAPM) beta. The comparison of Entropy and CAPM beta provide in depth analysis about the explanatory power of the model that in turn help investor to make right investment decisions that minimizes risk. In this context, this study aims to compare Shannon and Rennyi Entropies with the CAPM beta for measuring the risk. Ordinary Least square approach has been utilized using a dataset of 67 enterprises registered in Pakistan Stock exchange. The comparative analysis of CAPM beta and entropy has been carried out with the R(2) parameters. The result indicates that entropy has more explanatory power as compare to CAPM beta’s explanatory power, and this turns out to be the best option to evaluate the risk performances. The result implies that an investor should make the best investment decision by choosing an enterprise that provide with good returns at minimum risk based on entropy technique. |
format | Online Article Text |
id | pubmed-9778568 |
institution | National Center for Biotechnology Information |
language | English |
publishDate | 2022 |
publisher | Public Library of Science |
record_format | MEDLINE/PubMed |
spelling | pubmed-97785682022-12-23 Entropy-based financial asset pricing: Evidence from Pakistan Wang, Sheng Khan, Sher Ali Munir, Mubbasher Alhajj, Reda Khan, Yousaf Ali PLoS One Research Article Entropy is an alternative measure to calculate the risk, simplify the portfolios and equity risk premium. It has higher explanatory power than capital asset price model (CAPM) beta. The comparison of Entropy and CAPM beta provide in depth analysis about the explanatory power of the model that in turn help investor to make right investment decisions that minimizes risk. In this context, this study aims to compare Shannon and Rennyi Entropies with the CAPM beta for measuring the risk. Ordinary Least square approach has been utilized using a dataset of 67 enterprises registered in Pakistan Stock exchange. The comparative analysis of CAPM beta and entropy has been carried out with the R(2) parameters. The result indicates that entropy has more explanatory power as compare to CAPM beta’s explanatory power, and this turns out to be the best option to evaluate the risk performances. The result implies that an investor should make the best investment decision by choosing an enterprise that provide with good returns at minimum risk based on entropy technique. Public Library of Science 2022-12-22 /pmc/articles/PMC9778568/ /pubmed/36548250 http://dx.doi.org/10.1371/journal.pone.0278236 Text en © 2022 Wang et al https://creativecommons.org/licenses/by/4.0/This is an open access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/) , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. |
spellingShingle | Research Article Wang, Sheng Khan, Sher Ali Munir, Mubbasher Alhajj, Reda Khan, Yousaf Ali Entropy-based financial asset pricing: Evidence from Pakistan |
title | Entropy-based financial asset pricing: Evidence from Pakistan |
title_full | Entropy-based financial asset pricing: Evidence from Pakistan |
title_fullStr | Entropy-based financial asset pricing: Evidence from Pakistan |
title_full_unstemmed | Entropy-based financial asset pricing: Evidence from Pakistan |
title_short | Entropy-based financial asset pricing: Evidence from Pakistan |
title_sort | entropy-based financial asset pricing: evidence from pakistan |
topic | Research Article |
url | https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9778568/ https://www.ncbi.nlm.nih.gov/pubmed/36548250 http://dx.doi.org/10.1371/journal.pone.0278236 |
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