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Increases in risk and demand for risky asset

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Author Info
Alain Chateauneuf () (CERMSEM)
Ghizlane Lakhnati () (CERMSEM)

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Abstract

In 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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Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number b05033.

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Length: 13 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:mse:wpsorb:b05033

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

Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dionne, G. & Gollier, C., 1991. "Comparative Statics Under Multiple Sources of Risk with Appllications to Insurance Demand," Cahiers de recherche 9133, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    Other versions:
  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, vol. 34(2), pages 309-19, May. [Downloadable!] (restricted)
    Other versions:
  3. Quiggin, John, 1991. " Comparative Statics for Rank-Dependent Expected Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 4(4), pages 339-50, December.
  4. 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 425-37, June. [Downloadable!] (restricted)
  5. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March. [Downloadable!] (restricted)
  6. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July. [Downloadable!] (restricted)
  7. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September. [Downloadable!] (restricted)
  8. Gollier Christian, 1995. "The Comparative Statics of Changes in Risk Revisited," Journal of Economic Theory, Elsevier, vol. 66(2), pages 522-535, August. [Downloadable!] (restricted)
  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, vol. 31(1), pages 153-169, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gollier, Christian, 2009. "Does Ambiguity Aversion Reinforce Risk Aversion? Applications to Portfolio Choices and Asset Pricing," IDEI Working Papers 357, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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