Measuring Idiosyncratic Risk Absorbing Capacity of Companies A Welfare Optimization Approach

Abstract

Financial Institutions require measurement of concentration risk to ensure their funds are not concentrated with one sector, or investments surrounding one sector. To develop this idea, tools like Gini coefficient are adequately utilized, besides, the Gini Coefficient also support in Income inequality measure. However, Gini coefficient do not serve good with negative values and adjusted gini coefficient can only be applied with large bootstrapped samples.so unlike, the other papers, in this research, and alternative strategy for portfolio weight selection was considered, here, variance of the bootstrapped OLS regression coefficient series was considered as proxy to adjusted gini measure. Traditionally, the aggregate employee costs can adequately serve as measure of income inequality or idiosyncratic diversification; provided the explanatory variables were also idiosyncratic in nature. The study clearly explained that how the cement companies in India can be compared based on their self-absorbing capacities to handle such idiosyncratic wage risk burden.

Keywords: OLS, Bootstrapping, Risk optimization

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