“Spectral Risk Measures: Properties and Limitations”: Comment on Dowd, Cotter, and Sorwar

Mario Brandtner ()

Journal of Financial Services Research, 2016, vol. 49, issue 1, 131 pages

Abstract: In their paper “Spectral Risk Measures: Properties and Limitations”, Dowd et al. (J Financ Serv Res 341:61–75, 2008 ) introduce exponential and power spectral risk measures as subclasses of spectral risk measures (SRMs) to the literature, and claim that they are subject to three serious limitations: First, for these subclasses, the spectral risk may be counterintuitively decreasing when the user’s risk aversion is increasing. Second, these subclasses, and power SRMs in particular, become completely insensitive to market volatility when the respective parameters of risk aversion tend to their lower and upper boundaries. Third, exponential SRMs exhibit constant absolute risk aversion, while constant relative risk aversion better meets the empirical evidence. Consequently, “users of spectral risk measures must be careful to select utility functions that fit the features of the particular problems they are dealing with, and should be especially careful when using power SRMs.” (p. 61). In this comment, we show that the findings of Dowd et al. (J Financ Serv Res 341:61–75, 2008 ) suffer from misinterpretations and wrong conclusions. Copyright Springer Science+Business Media New York 2016

Keywords: Spectral risk measures; Exponential risk spectrum; Power risk spectrum; Comparative risk aversion; G15 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10693-014-0204-8 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jfsres:v:49:y:2016:i:1:p:121-131

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10693

DOI: 10.1007/s10693-014-0204-8

Access Statistics for this article

Journal of Financial Services Research is currently edited by Haluk Unal

More articles in Journal of Financial Services Research from Springer, Western Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().