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Defining bad news: Changes in return distribution that decrease risky asset demand

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  • Burton Hollifield
  • Alan Kraus

Abstract

We provide a random variable characterization of the necessary and sufficient conditions for a shift of the distribution of rate of return on the risky asset in the two asset portfolio problem to reduce demand for all risk--averse expected utility maximizing investors. We provide random variable characterizations of the shifts that reduce both demand and expected utility for all risk--averse investors and a random variable characterization of shifts in the payoff of the market portfolio that reduce the equilibrium price of the market portfolio and make all risk--investors worse off.

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  • Burton Hollifield & Alan Kraus, "undated". "Defining bad news: Changes in return distribution that decrease risky asset demand," GSIA Working Papers 2007-E32, Carnegie Mellon University, Tepper School of Business.
    • Handle: RePEc:cmu:gsiawp:155866254
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    References listed on IDEAS

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    1. Meyer, Jack & Ormiston, Michael B, 1985. "Strong Increases in Risk and Their Comparative Statics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 425-437, June.
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    3. Christian Gollier & Miles S. Kimball, 2018. "New methods in the classical economics of uncertainty: comparing risks," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(1), pages 5-23, May.
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    Cited by:

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    2. Chuang, O-Chia & Kuan, Chung-Ming & Tzeng, Larry Y., 2017. "Testing for central dominance: Method and application," Journal of Econometrics, Elsevier, vol. 196(2), pages 368-378.

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