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Increases in risk and demand for risky asset

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  • Alain Chateauneuf

    ()
    (CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - CNRS : UMR8095 - Université Paris I - Panthéon-Sorbonne)

  • Ghizlane Lakhnati

    ()
    (CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - CNRS : UMR8095 - Université Paris I - Panthéon-Sorbonne)

Abstract

n this paper, we examine the effect of a decrease in risk on the demand for risky asset in the standard portfolio problem. We introduce a new class of dominance, that we name relative order and we prove that this class of dominance is consistent both with central dominance introduced by Gollier [5] and with mean preserving increase in risk. Finally, we show that some known classes of dominance are particular cases of our new class of dominance.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00194413.

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Date of creation: Apr 2005
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Handle: RePEc:hal:cesptp:halshs-00194413

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Related research

Keywords: EU model; portfolio choice; mean preserving increase in risk; central dominance; relative simple dominance; relative dominance.;

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  1. Georges Dionne & Christian Gollier, 1992. "Comparative Statics Under Multiple Sources of Risk with Applications to Insurance Demand," The Geneva Risk and Insurance Review, Palgrave Macmillan, Palgrave Macmillan, vol. 17(1), pages 21-33, June.
  2. Dionne, Georges & Eeckhoudt, Louis & Gollier, Christian, 1993. "Increases in Risk and Linear Payoffs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 309-19, May.
  3. Quiggin, John, 1991. " Comparative Statics for Rank-Dependent Expected Utility Theory," Journal of Risk and Uncertainty, Springer, Springer, vol. 4(4), pages 339-50, December.
  4. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, Elsevier, vol. 2(3), pages 225-243, September.
  5. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 425-37, June.
  6. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, Elsevier, vol. 8(3), pages 337-360, July.
  7. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, Elsevier, vol. 3(1), pages 66-84, March.
  8. Gollier Christian, 1995. "The Comparative Statics of Changes in Risk Revisited," Journal of Economic Theory, Elsevier, Elsevier, vol. 66(2), pages 522-535, August.
  9. Meyer, Jack & Ormiston, Michael B., 1983. "The comparative statics of cumulative distribution function changes for the class of risk averse agents," Journal of Economic Theory, Elsevier, Elsevier, vol. 31(1), pages 153-169, October.
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Cited by:
  1. Gollier, Christian, 2009. "Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 357, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2011.

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