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Measures of Risk Aversion: Some Clarifying Comments

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  • Miller, Stephen M.

Abstract

Two prominent views pertaining to measures of risk aversion can be found in the literature. First, Arrow [2] and Pratt [3]developed risk aversion measures based on the curvature characteristics of the individual investor's utility for wealth function. If the investor's utility for wealth function is given by V(W), thenare the Arrow-Pratt measures of absolute and relative risk aversion, respectively. The investor is risk averse or a risk lover as r(W) and r* (W) are positive or negative. The investor exhibits increasing, constant, or decreasing absolute risk aversion as while he exhibits increasing, constant, or decreasing relative risk aversion as .

Suggested Citation

  • Miller, Stephen M., 1975. "Measures of Risk Aversion: Some Clarifying Comments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(2), pages 299-309, June.
    • Handle: RePEc:cup:jfinqa:v:10:y:1975:i:02:p:299-309_01
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    Cited by:

    1. Jean-Michel Courtault, 1993. "Substitution et complémentarité des actifs financiers: le cas Moyenne-Variance," Working Papers halshs-00447527, HAL.
    2. Trino-Manuel Niguez & Ivan Paya & David Peel & Javier Perote, 2013. "Higher-order moments in the theory of diversification and portfolio composition," Working Papers 18297128, Lancaster University Management School, Economics Department.
    3. V. Vance Roley, 1980. "Symmetry Restrictions in a System of Financial Asset Demands: A Theoretical and Empirical Analysis," NBER Working Papers 0593, National Bureau of Economic Research, Inc.

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