Skip to main content
SpringerLink
Log in

Risk, Return and International Portfolio Analysis: Entropy and Linear Belief Functions

  • Chapter
  • First Online:
Econometrics of Risk

Part of the book series: Studies in Computational Intelligence ((SCI,volume 583))

  • 1965 Accesses

Abstract

In this study, we analyze the international portfolio with respect to risk and return aspects. We applied entropy methods to find the optimal portfolio weights. In this method, we used entropy as the objective function and we also compared our results with the conventional method. Moreover, we use the linear belief function to build a portfolio, which can represent market information and financial knowledge and then we use matrix sweepings to integrate the knowledge for evaluating portfolio performance. Overall, our empirical analysis indicates that all entropy methods performed better than Markowitz method, and the finding also suggests that the investor should take the benefit from ASEAN market.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  1. Cavaglia, S., Hodrick, R., Vadim, M., Zhang, X.: Pricing the Global Industry Portfolios. Working Paper, National Bureau of Economic Research (2002)

    Google Scholar 

  2. Chiou, W.J.P.: Benefits of international diversification with investment constraints: an over-time perspective. J. Multinatl. Financ. Manag. 19(2), 93–110 (2009)

    Article  MathSciNet  Google Scholar 

  3. Dempster, A.P.: Normal Belief Functions and the Kalman Filter Research Report Department of Statistics. Harvard University, Cambridge (1990)

    Google Scholar 

  4. Fletcher, J., Marshall, A.: An empirical examination of the benefits of international diversification. J. Int. Financ. Mark. 15(5), 455–468 (2005)

    Article  Google Scholar 

  5. Glick, R., Hutchison, M.: Chinasfinancial linkages with Asia and the globalfinancial crisis. J. Int. Money Financ. 39, 186–206 (2013)

    Google Scholar 

  6. Hakansson, N.: Capital growth and the mean-variance approach to portfolio selection. J. Financ. Quant. Anal. 6(1), 517–557 (1971)

    Article  Google Scholar 

  7. Herrero, A.G., Vázquez, F.: International diversification gains and home bias in banking. J. Bank. Financ. 37, 2560–2571 (2013)

    Google Scholar 

  8. Jayasuriya, S.A.: Stock market correlations between China and its emerging market neighbors. Emerg. Mark. Rev 12(4), 418–431 (2011)

    Article  Google Scholar 

  9. Jaynes, E.T.: Information theory and statistical mechanics. In: Statistical Physics, New York pp. 181–218 (1963)

    Google Scholar 

  10. Konno, H., Kobayashi, K.: An integrated stock-bond portfolio optimization model. J. Econ. Dyn. Control 21, 1427–1444 (1997)

    Article  MATH  MathSciNet  Google Scholar 

  11. Liu, L.: A theory of Gaussian belief functions. Int. J. Approx. Reason. 14(2–3), 95–126 (1996)

    Article  MATH  Google Scholar 

  12. Liu, L.: Local computation of Gaussian belief functions. Int. J. Approx. Reason. 22(3), 217–248 (1999)

    Article  MATH  Google Scholar 

  13. Liu, L., Shenoy, C., Shenoy, P.P.: Knowledge representation and integration for portfolio evaluation using linear belief functions. IEEE Trans. Syst. Man, Cybern. Ser. A 36(4), 774–785 (2006)

    Article  Google Scholar 

  14. Markowitz, H.: Portfolio selection. J. Financ. 7(1), 77–91 (1952)

    Google Scholar 

  15. Markowitz, H.: Portfolio Selection: Efficient Diversification of Investments. Wiley, New York (1959)

    Google Scholar 

  16. Sharpe, W.F.: Mutual fund performance. J. Bus. 39(S1), 119–138 (1966)

    Article  Google Scholar 

  17. Shenoy, P.P., Shafer, G.: Axioms for probability and belief-function propagation. In: Shachter, R.D., Levitt, T.S., Kanal, L.N., Lemmer, J.F. (eds.) Uncertainty in Artificial Intelligence, vol. 4, pp. 169–198. North-Holland, Amsterdam (1990)

    Google Scholar 

  18. Li, L.: An economic measure of diversification benefits. Working Paper, Yale International Center for Finance (2003)

    Google Scholar 

  19. Tobin, J.: Liquidity preference as behavior towards risk. Rev. Econ. Stud. 25(2), 65–86 (1958)

    Article  Google Scholar 

  20. Zenios, S.A., Kang, P.: Mean-absolute deviation portfolio optimization for mortgage backed securities. Ann. Oper. Res. 45, 433–450 (1993)

    Article  MATH  Google Scholar 

  21. Zhou, X., Zhang, W., Zhang, J.: Volatility spillovers between the Chinese and world equity markets. Pacific-Basin Financ. J. 20(2), 247–270 (2012)

    Article  Google Scholar 

Download references

Acknowledgments

The authors are very grateful to Prof. Thierry Denoeux for his comments and Prof. Amos Golan for the concept of Entropy Econometrics. This study was supported from Prince of Songkla University-PhD Scholarship.

Author information

Authors and Affiliations

  1. Faculty of Economics, Chiang Mai University, Chiang Mai, 50200, Thailand

    Apiwat Ayusuk & Songsak Sriboonchitta

  2. Department of Business Economics, Faculty of Liberal Arts and Management Sciences, Prince of Songkla University, Suratthani, 84000, Thailand

    Apiwat Ayusuk

Authors
  1. Apiwat Ayusuk
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Songsak Sriboonchitta
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Apiwat Ayusuk .

Editor information

Editors and Affiliations

  1. Japan Advanced Institute of Science and Technology, Nomi, Japan

    Van-Nam Huynh

  2. Department of Computer Science, University of Texas at El Paso, El Paso, Texas, USA

    Vladik Kreinovich

  3. Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand

    Songsak Sriboonchitta

  4. Faculty of Economics, Chiang Mai University, Chiang Mai, Thailand

    Komsan Suriya

Rights and permissions

Reprints and permissions

Copyright information

© 2015 Springer International Publishing Switzerland

About this chapter

Cite this chapter

Ayusuk, A., Sriboonchitta, S. (2015). Risk, Return and International Portfolio Analysis: Entropy and Linear Belief Functions. In: Huynh, VN., Kreinovich, V., Sriboonchitta, S., Suriya, K. (eds) Econometrics of Risk. Studies in Computational Intelligence, vol 583. Springer, Cham. https://doi.org/10.1007/978-3-319-13449-9_22

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-13449-9_22

  • Published:

  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-13448-2

  • Online ISBN: 978-3-319-13449-9

  • eBook Packages: EngineeringEngineering (R0)

Publish with us

Policies and ethics

Search

Navigation