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The Demand For A Risky Asset: Signing, Jointly And Separately, The Effects Of Three Distributional Shifts

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  • Thomas Paulsson
  • Robert Sproule
  • Andreas Wagener

Abstract

We show that, if an individual's utility function exhibits a degree of relative temperance smaller than one, the individual will react, in a plausible way, to each of three common shifts in the stochastic distribution of his wealth, namely to FSD shifts, mean-preserving spreads and increases in downside risk. First, we derive, in a unified setting, necessary and sufficient conditions for signing the comparative-static effects of each of these shifts separately, and, second, we invoke implications of the property of mixed risk aversion to merge these separate conditions into a single sufficient condition for jointly signing all comparative-static effects. Copyright Blackwell Publishing Ltd 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Metroeconomica.

Volume (Year): 56 (2005)
Issue (Month): 2 (05)
Pages: 221-232

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Handle: RePEc:bla:metroe:v:56:y:2005:i:2:p:221-232

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Cited by:
  1. Eichner, Thomas & Wagener, Andreas, 2011. "Increases in skewness and three-moment preferences," Mathematical Social Sciences, Elsevier, vol. 61(2), pages 109-113, March.

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