Comparative Approach to the Backward Elimination and for-ward Selection Methods in Modeling the Systematic Risk Based on the ARFIMA-FIGARCH Model

Journal Title: Advances in Mathematical Finance and Applications - Year 2017, Vol 2, Issue 4

Abstract

The present study aims to model systematic risk using financial and accounting variables. Accordingly, the data for 174 companies in Tehran Stock Exchange are extracted for the period of 2006 to 2016. First, the systematic risk index is estimated using the ARFIMA-FIGARCH model. Then, based on the research background, 35 affective financial and accounting variables are simultaneously used with the help of the backward elimination and forward selection method for modeling. After analyzing and evaluating the variables in Eviews software, the four variables of debt ratio (CL. E), size (SIZE), net profit to sales ratio (NETP. S), and interest rate coverage ratio (ICR) are selected in the backward elimination method. In the forward selection method, in addition to the above variables, operating profit margin (OPM) is also chosen. The estimated model of these variables in both methods shows a low ratio of R2 coefficient that is approximately 7%. In the test case, the model of forward selection method has less error in all four criteria of root mean squared error (RMSE), mean absolute error (MAE), mean absolute percentage error (MAPE) and Tile coefficient (TIC) compared to the backward elimination method.

Authors and Affiliations

Nemat Rastgoo, Hossein Panahian

Keywords

Related Articles

Effective strategies for the establishment of integration model for succession planning and career progression path of iranian azad universities administrators (Qualitative Research Based Grounded Theory Approach)

This research was done to provide effective strategies for the establishment of integration model for succession planning and career progression path of azad universities administrators from the perspective of higher edu...

Impact of Managers’ Optimism on the Relationship between Patience of Major Shareholders and Information Influence Management

Behavioral financial knowledge deals with the behavior of investors and other users in the capital market. According to the financial knowledge, it is no longer expected that only factors such as accounting information a...

The Moderating Role of Firms characteristics on the Relationship between Working Capital Management and Financial Performance

Optimal working capital management can positively effect on the Firm performance, but this relationship can be affected by major characteristics of the firm, making an important subject for research. This research invest...

Impact of Long-term Debt on Overinvestment Problem of Agency

Business units are always faced with investment opportunities and need to make logical decisions on an optimal investment. Indeed, the investment of each business unit should be done with regard to the resource constrain...

Evaluating the Performance of Forecasting Models for Portfolio Allocation Purposes with Generalized GRACH Method

Portfolio theory assumes that investors accept risk. This means thatin the equal rate of return on the two assets, the assets were chosenthat have a lower risk level. Modern portfolio theory is accepted byinvestors who b...

Download PDF file
  • EP ID EP476051
  • DOI 10.22034/AMFA.2017.536263
  • Views 61
  • Downloads 0

How To Cite

Nemat Rastgoo, Hossein Panahian (2017). Comparative Approach to the Backward Elimination and for-ward Selection Methods in Modeling the Systematic Risk Based on the ARFIMA-FIGARCH Model. Advances in Mathematical Finance and Applications, 2(4), 11-30. https://europub.co.uk/articles/-A-476051