Exponential risk measure with application to UK asset allocation
In the paper the exponential risk measure of Damant and Satchell is used to formulate an investor's utility function and the properties of this function are investigated. The utility function is calibrated for a typical UK investor who would hold different proportions of equity. It is found that, for plausible parameter values, a typical UK investor will hold more equity under the assumption of non-normality of return if his utility function has the above formulation and not the standard mean-variance utility function. Furthermore, our utility function is consistent with positive skewness affection and kurtosis aversion. Some aggregate estimates of risk parameters are calculated for the typical UK investor. These do not seem well determined, raising issues of the roles of aggregation and wealth in this model.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 7 (2000)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAMF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAMF20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
- J. L. Knight & S. E. Satchell & K. C. Tran, 1995.
"Statistical modelling of asymmetric risk in asset returns,"
Applied Mathematical Finance,
Taylor & Francis Journals, vol. 2(3), pages 155-172.
- Knight, J.L. & Stachell, S.E. & Tran, K.C., 1995. "Statistical Modeling of Asymetric Risk in Asset Returns," Papers 95-3, Saskatchewan - Department of Economics.
- Levy, H & Markowtiz, H M, 1979. "Approximating Expected Utility by a Function of Mean and Variance," American Economic Review, American Economic Association, vol. 69(3), pages 308-17, June.
- Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-26, March.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
- Robert R. Grauer & Nils H. Hakansson, 1995. "Gains From Diversifying Into Real Estate: Three Decades of Portfolio Returns Based on the Dynamic Investment Model," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(2), pages 117-159.
When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:7:y:2000:i:2:p:127-152. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.