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The Effects of Shifts in a Return Distribution on Optimal Portfolios

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Author Info
Hadar, Josef
Seo, Tae Kun
Abstract

When the distribution of the returns of a risky asset undergoes a stochastically dominating shift, a risk-averse investor may not necessarily increase the investment in that asset. This paper provides restrictions on the investor's utility function that are necessary and sufficient for a dominating shift to bring about no decrease in the investment in the respective asset if there are two risky assets in the portfolio. These conditions are also necessary if there are n > 2 assets, and are necessary and sufficient if the utility function exhibits constant absolute risk aversion. Copyright 1990 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 31 (1990)
Issue (Month): 3 (August)
Pages: 721-36
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Handle: RePEc:ier:iecrev:v:31:y:1990:i:3:p:721-36

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  2. Alexander E. Saak, 2004. "Spatial Production Concentration under Yield Risk and Risk Aversion," Food and Agricultural Policy Research Institute (FAPRI) Publications 04-wp362, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University. [Downloadable!]
  3. Alexander E. Saak, 2004. "Spatial Production Concentration under Yield Risk and Risk Aversion," Center for Agricultural and Rural Development (CARD) Publications 04-wp362, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
  4. Saak, Alexander, 2004. "Spatial Production Concentration under Yield Risk and Risk Aversion," Staff General Research Papers 11949, Iowa State University, Department of Economics. [Downloadable!]
  5. GOLLIER, Christian, 2006. "Does Ambiguity Aversion Reinforce Risk Aversion? Applications to Portfolio Choices and Asset Pricing," IDEI Working Papers 357, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  9. Harris Schlesinger & Christian Gollier, 2001. "Changes in Risk and Asset Prices," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  10. Jean Fernand Nguema, 2005. "Stochastic dominance on optimal portfolio with one risk-less and two risky assets," Economics Bulletin, Economics Bulletin, vol. 7(7), pages 1-7. [Downloadable!]
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