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Linear-Risk-Tolerant, Invariant Risk Preferences

Author

Listed:
  • Chambers, Robert G.
  • Quiggin, John

Abstract

Quiggin and Chambers have introduced the notion of invariant preferences, and shown that the only invariant expected-utility functionals are those associated with a quadratic utility function. This note identifies the class of preferences which simultaneously satisfy invariance, two-fund portfolio separation, and linear risk tolerance to determine if there exist meaningful classes of preferences, which inherit much of the quadratic family's theoretical and empirical tractability, but do not necessarily inherit its more unattractive properties when regarded as preferences over wealth.

Suggested Citation

  • Chambers, Robert G. & Quiggin, John, "undated". "Linear-Risk-Tolerant, Invariant Risk Preferences," Risk and Sustainable Management Group Working Papers 151162, University of Queensland, School of Economics.
    • Handle: RePEc:ags:uqsers:151162
    DOI: 10.22004/ag.econ.151162
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    Cited by:

    1. is not listed on IDEAS
    2. Panos K. Pouliasis & Nikos C. Papapostolou, 2018. "Volatility and correlation timing: The role of commodities," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(11), pages 1407-1439, November.
    3. Giamouridis, Daniel & Vrontos, Ioannis D., 2007. "Hedge fund portfolio construction: A comparison of static and dynamic approaches," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 199-217, January.

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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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