MEASURING PATH DEPENDENCY
Journal Title: UTMS Journal of Economics - Year 2017, Vol 8, Issue 1
Abstract
While risk management gained popularity during the last decades even some of the basic risk types are still far out of focus. One of these is path dependency that refers to the uncertainty of how we reach a certain level of total performance over time. While decision makers are careful in accessing how their position will look like the end of certain periods, little attention is given how they will get there through the period. The uncertainty of how a process will develop across a shorter period of time is often “eliminated” by simply choosing a longer planning time interval, what makes path dependency is one of the most often overlooked business risk types. After reviewing the origin of the problem we propose and compare seven risk measures to access path. Traditional risk measures like standard deviation of sub period cash flows fail to capture this risk type. We conclude that in most cases considering the distribution of the expected cash flow effect caused by the path dependency may offer the best method, but we may need to use several measures at the same time to include all the optimisation limits of the given firm.
Authors and Affiliations
Peter Juhasz, Kata Varadi, Agnes Vidovics-Dancs, Janos Szaz
Keywords
Related Articles
- EP ID EP274283
- DOI -
- Views 128
- Downloads 0
PUBLIC RELATION BASED MODEL OF INTEGRATED MARKETING COMMUNICATIONS
The marketing communications industry and theory are facing rapid changes in accordance with global business and society fluctuations. Global and local market conditions are constantly varying and thus creating hardly pr...
TEST OF THE FAMA-FRENCH THREE-FACTOR MODEL IN CROATIA
This paper empirically examines the Fama-French three-factor model of stock returns for Croatia. In contrast to the results of Fama and French (1993) for the U.S. stock market, their three-factor model did not show so su...
THE IMPACT OF SOCIAL TRANSFERS ON INEQUALITY MEASURED BY GINI INDEX: THE EXAMPLE OF MACEDONIA
Through the past few decades the problem of income inequality and welfare segregation has become quite significant for the economies of the countries worldwide. Republic of Macedonia as a country in development is presen...
PORTFOLIO INSURANCE INVESTMENT STRATEGIES: A RISK-MANAGEMENT TOOL
Unsystemic risks in financial markets may be reduced through diversification. Systemic risks relate to the overall economy, cannot be influenced by a single company, and require special attention. Empirical research on r...
THE NECESSITY OF LEGAL ARRANGEMENT OF UNIT-LINKED LIFE INSURANCE PRODUCTS
The rapid development of life insurance and its dissemination throughout the world, and the emergence of new types of life insurance products, in order to meet the needs of citizens, raises the question of proper legal a...