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A Note on Asset Proportions, Stochastic Dominance, and the 50% Rule

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Author Info

  • Ephraim Clark

    (Middlesex University Business School, The Burroughs, London NW4 4BT, United Kingdom)

  • Octave Jokung

    (EDHEC Graduate School of Management, Catholic University, Lille, France)

Abstract

In this note we analyze the composition of an optimal portfolio by considering the cumulative conditional expected outcome of two dependent assets. We develop a conditional stochastic dominance relation and show that for any concave von Neumann-Morgenstern utility function, the proportion of wealth invested in the dominant asset will be greater than 50%.

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File URL: http://dx.doi.org/10.1287/mnsc.45.12.1724
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 45 (1999)
Issue (Month): 12 (December)
Pages: 1724-1727

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Handle: RePEc:inm:ormnsc:v:45:y:1999:i:12:p:1724-1727

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Related research

Keywords: stochastic dominance; conditional density function; optimal proportion; risk aversion; demand problem;

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Cited by:
  1. Dachraoui, K. & Dionne, G., 2000. "Optimal Financial Portfolio and Dependence of Risky Assets," Ecole des Hautes Etudes Commerciales de Montreal- 00-12, Ecole des Hautes Etudes Commerciales de Montreal-Chaire de gestion des risques..
  2. Belghitar, Yacine & Clark, Ephraim & Kassimatis, Konstantino, 2011. "The prudential effect of strategic institutional ownership on stock performance," International Review of Financial Analysis, Elsevier, vol. 20(4), pages 191-199, August.
  3. Clark, Ephraim & Jokung, Octave & Kassimatis, Konstantinos, 2011. "Making inefficient market indices efficient," European Journal of Operational Research, Elsevier, vol. 209(1), pages 83-93, February.
  4. Ephraim Clark & Konstantinos Kassimatis, 2013. "International equity flows, marginal conditional stochastic dominance and diversification," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 251-271, February.
  5. Clark, Ephraim & Kassimatis, Konstantinos, 2012. "An empirical analysis of marginal conditional stochastic dominance," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1144-1151.
  6. Clark, Ephraim & Kassimatis, Konstantinos, 2011. "An alternative measure of the "world market portfolio": Determinants, efficiency, and information content," Journal of International Money and Finance, Elsevier, vol. 30(5), pages 724-748, September.

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