Portfolio Selection with Monotone Mean-Variance Preferences
We propose a portfolio selection model based on a class of monotone preferences that coincide with mean-variance preferences on their domain of monotonicity, but differ where mean-variance preferences fail to be monotone and are therefore not economically meaningful. The functional associated to this new class of preferences is the best approximation of the mean-variance functional among those which are monotonic. We solve the portfolio selection problem and we derive a monotone version of the CAPM, which has two main features: (i) it is, unlike the standard CAPM model, arbitrage free, (ii) it has empirically testable CAPM-like relations. The monotone CAPM has thus a sounder theoretical foundation than the standard CAPM and a comparable empirical tractability.
|Date of creation:||Apr 2008|
|Contact details of provider:|| Postal: Via Nazionale, 91 - 00184 Roma|
Web page: http://www.bancaditalia.it
More information through EDIRC
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.:
- Sharpe, William F, 1991.
" Capital Asset Prices with and without Negative Holdings,"
Journal of Finance,
American Finance Association, vol. 46(2), pages 489-509, June.
- Sharpe, William F., 1990. "Capital Asset Prices With and Without Negative Holding," Nobel Prize in Economics documents 1990-3, Nobel Prize Committee.
- Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006.
"Dynamic Variational Preferences,"
Carlo Alberto Notebooks
1, Collegio Carlo Alberto.
- Paolo Ghirardato & Massimo Marinacci, 2000.
"Risk, Ambiguity and the Separation of Utility and Beliefs,"
Econometric Society World Congress 2000 Contributed Papers
1143, Econometric Society.
- Paolo Ghirardato & Massimo Marinacci, 2001. "Risk, Ambiguity, and the Separation of Utility and Beliefs," Mathematics of Operations Research, INFORMS, vol. 26(4), pages 864-890, November.
- Massimo Marinacci & Paolo Ghirardato, 2001. "Risk, ambiguity, and the separation of utility and beliefs," ICER Working Papers - Applied Mathematics Series 21-2001, ICER - International Centre for Economic Research.
- Ghirardato, Paolo & Marinacci, Massimo, 2000. "Risk, Ambigity and the Separation of Utility and Beliefs," Working Papers 1085, California Institute of Technology, Division of the Humanities and Social Sciences.
- Paolo Ghirardato & Massimo Marinacci, 2000. "Risk, Ambiguity, and the Separation of Utility and Beliefs," Levine's Working Paper Archive 7616, David K. Levine.
- Dybvig, Philip H & Ingersoll, Jonathan E, Jr, 1982. "Mean-Variance Theory in Complete Markets," The Journal of Business, University of Chicago Press, vol. 55(2), pages 233-251, April.
- Gilboa, Itzhak & Schmeidler, David, 1989.
"Maxmin expected utility with non-unique prior,"
Journal of Mathematical Economics,
Elsevier, vol. 18(2), pages 141-153, April.
- Thomas J. Sargent & LarsPeter Hansen, 2001. "Robust Control and Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 60-66, May.
- Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-1152, September.
- Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004.
"Ambiguity Aversion, Robustness, and the Variational Representation of Preferences,"
Carlo Alberto Notebooks
12, Collegio Carlo Alberto, revised 2006.
- Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
- MacKinlay, A Craig & Richardson, Matthew P, 1991. " Using Generalized Method of Moments to Test Mean-Variance Efficiency," Journal of Finance, American Finance Association, vol. 46(2), pages 511-527, June.
- Fabio Maccheroni & Massimo Marinacci, 2004. "A strong law of large numbers for capacities," ICER Working Papers - Applied Mathematics Series 28-2004, ICER - International Centre for Economic Research.
- Domenico Menicucci, 2003.
"Optimal two-object auctions with synergies,"
Review of Economic Design,
Springer;Society for Economic Design, vol. 8(2), pages 143-164, October.
- Shumel Kandel & Robert F. Stambaugh, "undated".
"A Mean-Variance Framework for Tests for Asset Pricing Models,"
Rodney L. White Center for Financial Research Working Papers
25-88, Wharton School Rodney L. White Center for Financial Research.
- Kandel, Shmuel & Stambaugh, Robert F, 1989. "A Mean-Variance Framework for Tests of Asset Pricing Models," Review of Financial Studies, Society for Financial Studies, vol. 2(2), pages 125-156.
- Bigelow, John Payne, 1993. "Consistency of mean-variance analysis and expected utility analysis : A complete characterization," Economics Letters, Elsevier, vol. 43(2), pages 187-192.
- Mark Britten-Jones, 1999. "The Sampling Error in Estimates of Mean-Variance Efficient Portfolio Weights," Journal of Finance, American Finance Association, vol. 54(2), pages 655-671, 04.
When requesting a correction, please mention this item's handle: RePEc:bdi:wptemi:td_664_99. 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: ()
If references are entirely missing, you can add them using this form.