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Heterogeneity of Investors and Asset Pricing in a Risk-Value World Author info | Abstract | Publisher info | Download info | Related research | Statistics Franke, Günter
Weber, Martin
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Portfolio choice and the implied asset pricing are usually derived assuming maximization of expected utility. In this Paper, they are derived from risk-value models that generalize the Markowitz-model. We use a behaviourally based risk measure with an endogenous or exogenous benchmark. If the risk measure is modelled by a negative HARA-function, then sharing rules are convex or concave relative to each other. A measure of heterogeneity of investors is derived. More heterogeneity (a) raises convexity/concavity of sharing rules and, thus, the need of investors to trade options, (b) increases convexity of the pricing kernel, (c) raises option prices relative to the price of the under-lying asset and (d) raises the variance and kurtosis of the risk-neutral probability distribution of the aggregate pay-off.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
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Date of creation: Mar 2003Date of revision:
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Keywords: asset pricing ; convexity of pricing kernal ; decision-making under risk ; heterogeneity of investors ; Other versions of this item:
Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions G12 - Financial Economics - - General Financial Markets - - - Asset Pricing G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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