Conditions Ensuring the Decomposition of Asset Demand for All Risk-Averse Investors
AbstractThe paper explores how the demand for a risky asset can be decomposed into an investment effect and a hedging effect by all risk-averse investors. This question has been shown to be complex when considered outside of the mean-variance framework. Dependence among returns on the risky assets is restricted to quadrant dependence and it is found that the demand for one risky asset can be decomposed into an investment component based on the risk premium offered by the asset and a hedging component used against the fluctuations in the return on the other risky asset. The paper also discusses how the class of quadrant-dependent distributions is related to that of two-fund separating distributions. This contribution opens up the search for broader distributional hypotheses suitable to asset demand models. Examples are discussed.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal The European Journal of Finance.
Volume (Year): 13 (2007)
Issue (Month): 5 ()
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- Jingyuan Li, 2012. "Precautionary saving in the presence of labor income and interest rate risks," Journal of Economics, Springer, vol. 106(3), pages 251-266, July.
- Jingyuan Li & Georges Dionne, 2010. "A Theoretical Extension of the Consumption-based CAPM Model," Cahiers de recherche 1047, CIRPEE.
- Georges Dionne & Jingyuan Li & Cedric Okou, 2012. "An Extension of the Consumption-based CAPM Model," Cahiers de recherche 1214, CIRPEE.
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