IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v58y2023ipds1544612323010401.html
   My bibliography  Save this article

How does a change in downside risk affect optimal demand for a risky asset?: Comparative statics on Tail Conditional Expectation

Author

Listed:
  • Nakamura, Kazuki

Abstract

This paper explains how changes in the return distribution of a risky asset, which alters Tail Conditional Expectation (TCE), impact the agent’s portfolio selection. We establish sufficient conditions for distribution changes, leading to a TCE reduction, to increase optimal demand for the risky asset. These results imply that risk-averse agents may increase their optimal demand for the risky asset when the downside risk premium increases. Furthermore, evaluating TCE, or downside risk premium, is compatible with second-degree stochastic dominance. This suggests that such an order of downside risk measures can provide additional insight into an agent’s portfolio selection, as identified by the stochastic dominance criteria.

Suggested Citation

  • Nakamura, Kazuki, 2023. "How does a change in downside risk affect optimal demand for a risky asset?: Comparative statics on Tail Conditional Expectation," Finance Research Letters, Elsevier, vol. 58(PD).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pd:s1544612323010401
    DOI: 10.1016/j.frl.2023.104668
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612323010401
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2023.104668?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Portfolio theory; Tail conditional expectation; Value at risk; Stochastic dominance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:58:y:2023:i:pd:s1544612323010401. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.