A Note on Asset Proportions, Stochastic Dominance, and the 50% Rule
In this note we analyze the composition of an optimal portfolio by considering the cumulative conditional expected outcome of two dependent assets. We develop a conditional stochastic dominance relation and show that for any concave von Neumann-Morgenstern utility function, the proportion of wealth invested in the dominant asset will be greater than 50%.
Volume (Year): 45 (1999)
Issue (Month): 12 (December)
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- Masaaki Kijima & Masamitsu Ohnishi, 1996. "Portfolio Selection Problems Via The Bivariate Characterization Of Stochastic Dominance Relations," Mathematical Finance, Wiley Blackwell, vol. 6(3), pages 237-277.
- Josef Hadar & Tae Kun Seo, 1988. "Asset Proportions in Optimal Portfolios," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 459-468.
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- Paul L. McEntire, 1984. "Portfolio Theory for Independent Assets," Management Science, INFORMS, vol. 30(8), pages 952-963, August.
- Masaaki Kijima, 1997. "The Generalized Harmonic Mean And A Portfolio Problem With Dependent Assets," Theory and Decision, Springer, vol. 43(1), pages 71-87, July.
- Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
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