Alternative Risk Measures and Stock Selection
22 Pages Posted: 5 Apr 2015
Date Written: April 2, 2015
Uncertainty is generally avoided when investing. Volatility is a popular proxy for investment uncertainty, and indeed low volatility stocks outperform high volatility stocks. However, there are also many other possible measures of uncertainty, among which are entropy and the Hurst exponent. Here we show that these measures also predict groups of stocks that outperform.
Keywords: hurst exponent, entropy, risk, volatility, anomalies, stock selection
JEL Classification: G11, G14
Suggested Citation: Suggested Citation