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Greater Downside Risk Aversion

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Author Info

  • Keenan, Donald C
  • Snow, Arthur

Abstract

Although investors are concerned foremost with mean and variance, they are also sensitive to downside risk. In this paper, we introduce an index of downside risk aversion to distinguish risk aversion from higher-order aspects of risk preference, including prudence. We show that the index of downside risk aversion S increases with monotonic downside risk averse transformations of utility, thereby directly linking S to the definition of downside risk aversion introduced by Menezes, et al. (1980). Although the index S applies equally to risk averse and risk loving decision makers, for a given positive degree of risk aversion, S is greater when the index of prudence is greater and vice versa. Copyright 2002 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 24 (2002)
Issue (Month): 3 (May)
Pages: 267-77

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Handle: RePEc:kap:jrisku:v:24:y:2002:i:3:p:267-77

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Web page: http://www.springerlink.com/link.asp?id=100299

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Cited by:
  1. CRAINICH, Davida & EECKHOUDT, Louis, . "On the intensity of downside risk aversion," CORE Discussion Papers RP -2061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Liu, Liqun & Meyer, Jack, 2013. "Substituting one risk increase for another: A method for measuring risk aversion," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2706-2718.
  3. Keenan, Donald C. & Snow, Arthur, 2010. "Greater prudence and greater downside risk aversion," Journal of Economic Theory, Elsevier, vol. 145(5), pages 2018-2026, September.
  4. Donald Keenan & Arthur Snow, 2012. "The Schwarzian derivative as a ranking of downside risk aversion," Journal of Risk and Uncertainty, Springer, vol. 44(2), pages 149-160, April.
  5. Bernard Sinclair-Desgagné & Marie-Cécile Fagart, 2004. "Auditing policies and information," Econometric Society 2004 North American Winter Meetings 86, Econometric Society.
  6. Udo Ebert, 2005. "Measures of downside risk," Economics Bulletin, AccessEcon, vol. 4(16), pages 1-9.
  7. Kim, Kwansoo & Chavas, Jean-Paul & Barham, Bradford L. & Foltz, Jeremy D., 2012. "Rice, Irrigation and Downside Risk: A Quantile Analysis of Risk Exposure and Mitigation on Korean Farms," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124814, Agricultural and Applied Economics Association.
  8. Keenan, Donald C. & Snow, Arthur, 2009. "Greater downside risk aversion in the large," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1092-1101, May.
  9. Liqun Liu & Jack Meyer, 2012. "Decreasing absolute risk aversion, prudence and increased downside risk aversion," Journal of Risk and Uncertainty, Springer, vol. 44(3), pages 243-260, June.
  10. repec:ebl:ecbull:v:4:y:2005:i:16:p:1-9 is not listed on IDEAS
  11. Jindapon, Paan, 2010. "Prudence probability premium," Economics Letters, Elsevier, vol. 109(1), pages 34-37, October.
  12. Liqun Liu & Andrew Rettenmaier & Thomas Saving, 2009. "Conditional payments and self-protection," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 159-172, April.

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