Preparing for the Worst: Incorporating Downside Risk in Stock Market Investments

Review
"…most students in market finance would benefit from using it as an introduction to downside risks." (Journal of the American Statistical Association, December 2005)

“…presents the latest ideas in the field from the ground up…” (Zentralblatt MATH, Vol. 1064 (15), 2005) Product Description
Stock market investors have very different reactions to downside versus upside risk. This book begins by explaining the current treatment of stock market risk and methods of lowering that risk. The authors then show that many types of asymmetry of stock returns or investor reactions cause the existing theory to fail. They present the theory of downside risk and utility theory to account for the asymmetry, showing how the previous model can be adjusted for downside risk.

Download Description
Stock market investors have very different reactions to downside versus upside risk. This book begins by explaining the current treatment of stock market risk and methods of lowering that risk. The authors then show that many types of asymmetry of stock returns or investor reactions cause the existing theory to fail. They present the theory of downside risk and utility theory to account for the asymmetry, showing how the previous model can be adjusted for downside risk.

From the Back Cover
A timely approach to downside risk and its role in stock market investments

When dealing with the topic of risk analysis, most books on investments treat downside and upside risk equally. Preparing for the Worst takes an entirely novel approach by focusing on downside risk and explaining how to incorporate it into investment decisions. Highlighting this asymmetry of the stock market, the authors describe how existing theories miss the downside and follow with explanations of how it can be included. Various techniques for calculating downside risk are demonstrated.

This book presents the latest ideas in the field from the ground up, making the discussion accessible to mathematicians and statisticians interested in applications in finance, as well as to finance professionals who may not have a mathematical background. An invaluable resource for anyone wishing to explore the critical issues of finance, portfolio management, and securities pricing, this book:

* Incorporates Value at Risk into the theoretical discussion
* Uses many examples to illustrate downside risk in U.S., international, and emerging market investments
* Addresses downside risk arising from fraud and corruption
* Includes step-by-step instructions on how to implement the methods introduced in this book
* Offers advice on how to avoid pitfalls in calculations and computer programming
* Provides software use information and tips



About the Author
HRISHIKESH D. VINOD, PhD, is Director of the Institute for Ethics and Economic Policy and Professor of Economics at Fordham University in New York. He is also a Fellow of the International Institute of Public Ethics and of the Journal of Econometrics.

DERRICK P. REAGLE, PhD, is Associate Chair for Graduate Studies in the Department of Economics at Fordham University.