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A Note on Asset Proportions, Stochastic Dominance, and the 50% Rule

  • Ephraim Clark

    (Middlesex University Business School, The Burroughs, London NW4 4BT, United Kingdom)

  • Octave Jokung

    (EDHEC Graduate School of Management, Catholic University, Lille, France)

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%.

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File URL: http://dx.doi.org/10.1287/mnsc.45.12.1724
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 45 (1999)
Issue (Month): 12 (December)
Pages: 1724-1727

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Handle: RePEc:inm:ormnsc:v:45:y:1999:i:12:p:1724-1727
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  1. 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.
  2. 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.
  3. Paul L. McEntire, 1984. "Portfolio Theory for Independent Assets," Management Science, INFORMS, vol. 30(8), pages 952-963, August.
  4. Peter C. Fishburn, 1978. "Stochastic Dominance Without Transitive Preferences," Management Science, INFORMS, vol. 24(12), pages 1268-1277, August.
  5. Josef Hadar & Tae Kun Seo, 1988. "Asset Proportions in Optimal Portfolios," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 459-468.
  6. Landsberger, Michael & Meilijson, Isaac, 1990. "Demand for risky financial assets: A portfolio analysis," Journal of Economic Theory, Elsevier, vol. 50(1), pages 204-213, February.
  7. 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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