IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Comparison of Alternative Utility Functions in Portfolio Selection Problems

  • J. G. Kallberg

    (New York University)

  • W. T. Ziemba

    (University of British Columbia)

Registered author(s):

    This paper examines the effect of alternative utility functions and parameter values on the optimal composition of a risky investment portfolio. Normally distributed assets are the setting for the theoretical and empirical analyses. The results agree well with the available theory and imply utility functions and parameter values that are appropriate for investors with particular risk-bearing attitudes. The results give strong empirical support to the proposition that utility functions having different functional forms and parameter values but "similar" absolute risk aversion indices have "similar" optimal portfolios. These results suggest that over horizons up to one year one can safely substitute "convenient" surrogate utility functions for other utility functions, for reasons of tractability or otherwise. The results also provide guidance regarding the significance of the magnitude and change of particular numerical values of the risk aversion index. Moreover, theoretical ("exact") results are obtained using Rubinstein's measure of global risk aversion.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://dx.doi.org/10.1287/mnsc.29.11.1257
    Download Restriction: no

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 29 (1983)
    Issue (Month): 11 (November)
    Pages: 1257-1276

    as
    in new window

    Handle: RePEc:inm:ormnsc:v:29:y:1983:i:11:p:1257-1276
    Contact details of provider: Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Web page: http://www.informs.org/
    Email:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:29:y:1983:i:11:p:1257-1276. 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.