Putting the Aumann–Serrano Riskiness Index to work
Review of Accounting and Finance
ISSN: 1475-7702
Article publication date: 17 January 2023
Issue publication date: 25 January 2023
Abstract
Purpose
The purpose of this study is to estimate the convergence order of the Aumann–Serrano Riskiness Index.
Design/methodology/approach
This study uses the equivalent relation between the Aumann–Serrano Riskiness Index and the moment generating function and aggregately compares between each two statistical moments for statistical significance. Thus, this study enables to find the convergence order of the index to its stable value.
Findings
This study finds that the first-best estimation of the Aumann–Serrano Riskiness Index is reached in no less than its seventh statistical moment. However, this study also finds that its second-best approximation could be achieved with its second statistical moment.
Research limitations/implications
The implications of this research support the standard deviation as a statistically sufficient approximation of Aumann–Serrano Riskiness Index, thus strengthening the CAPM methodology for asset pricing in the financial markets.
Originality/value
This research sheds a new light, both in theory and in practice, on understanding of the risk’s structure, as it may improve accuracy of asset pricing.
Keywords
Acknowledgements
The authors thank Prof Haim Shalit from Ben Gurion University of the Negev, Prof Ralph Sonenshine from the American University, Prof Ender Demir from Reykjavik University, Prof Uchenna Tony-Okeke from Coventry University, Prof Conrado Diego García-Gómez from University of Valladolid and the two anonymous reviewers for their helpful comments.
Citation
Nisani, D., Shelef, A. and David, O. (2023), "Putting the Aumann–Serrano Riskiness Index to work", Review of Accounting and Finance, Vol. 22 No. 1, pp. 84-122. https://doi.org/10.1108/RAF-04-2022-0134
Publisher
:Emerald Publishing Limited
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