Optimal Portfolios with One Safe and One Risky Asset: Effects of Changes in Rate of Return and Risk
This paper examines changes in the optimal proportions of investment capital placed in a safe asset and in a risky asset by an expected utility maximizing risk averse investor. If the return for the safe asset increases and the risky asset distribution remains fixed, the optimal proportion invested in the safe asset will increase provided that the investor's absolute risk aversion is nondecreasing or his proportional risk aversion never exceeds unity. Otherwise, it can be optimal to decrease holdings in the safe asset when its return increases. If the return for the safe asset remains fixed and the risky distribution improves by a first degree stochastic dominance change, the optimal proportion invested in the risky asset will increase (or not decrease) provided that proportional risk aversion never exceeds one plus the product of the gross return for the safe asset times absolute risk aversion. Otherwise, it may be optimal to decrease holdings in the risky asset when its distribution improves in the indicated manner.
Volume (Year): 22 (1976)
Issue (Month): 10 (June)
|Contact details of provider:|| Postal: |
Web page: http://www.informs.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:22:y:1976:i:10:p:1064-1073. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.