We consider decision-making under risk in which random events affect the value of the portfolio multiplicatively, rather than additively. In this case, a higher variability in the rate of return not only is associated with a higher risk, a bad property, but also engenders a higher expected...

This paper presents evidence that Ordinary Least Squares estimators of beta coefficients of major firms and portfolios are highly sensitive to observations of extremes in market index returns. This sensitivity is rooted in the inconsistency of the quadratic loss function in financial theory. By...