IDEAS home Printed from https://ideas.repec.org/p/icr/wpmath/27-2004.html
   My bibliography  Save this paper

Portfolio Selection with Monotone Mean-Variance Preferences

Author

Listed:
  • Fabio Maccheroni
  • Massimo Marinacci
  • Aldo Rustichini
  • Marco Taboga

Abstract

We propose a portfolio selection model based on a class of preferences that coincide with mean-variance preferences on their domain of monotonicity, but differ where mean-variance preferences fail to be monotone.

Suggested Citation

  • Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini & Marco Taboga, 2004. "Portfolio Selection with Monotone Mean-Variance Preferences," ICER Working Papers - Applied Mathematics Series 27-2004, ICER - International Centre for Economic Research, revised Dec 2004.
  • Handle: RePEc:icr:wpmath:27-2004
    as

    Download full text from publisher

    File URL: http://www.biblioecon.unito.it/biblioservizi/RePEc/icr/wp2004/Maccheroni-Marinacci27-04.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert A. Jarrow & Dilip B. Madan, 1997. "Is Mean-Variance Analysis Vacuous: Or was Beta Still Born?," Review of Finance, European Finance Association, vol. 1(1), pages 15-30.
    2. 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.
    3. Aleš Černý, 2003. "Generalised Sharpe Ratios and Asset Pricing in Incomplete Markets," Review of Finance, European Finance Association, vol. 7(2), pages 191-233.
    4. 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.
    5. repec:wsi:ijtafx:v:11:y:2008:i:03:n:s0219024908004828 is not listed on IDEAS
    6. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
    7. Maccheroni, Fabio & Marinacci, Massimo & Rustichini, Aldo, 2006. "Dynamic variational preferences," Journal of Economic Theory, Elsevier, vol. 128(1), pages 4-44, May.
    8. 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.
    9. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    10. Černý, Aleš & Maccheroni, Fabio & Marinacci, Massimo & Rustichini, Aldo, 2012. "On the computation of optimal monotone mean–variance portfolios via truncated quadratic utility," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 386-395.
    11. 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.
    12. 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.
    13. 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.
    14. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    15. 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.
    16. Thomas J. Sargent & LarsPeter Hansen, 2001. "Robust Control and Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 60-66, May.
    17. Filipovic, Damir & Kupper, Michael, 2007. "Monotone and cash-invariant convex functions and hulls," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 1-16, July.
    18. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    19. 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.
    20. 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, April.
    21. 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.
    22. 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.
    23. Rose-Anne Dana, 2005. "A Representation Result For Concave Schur Concave Functions," Mathematical Finance, Wiley Blackwell, vol. 15(4), pages 613-634.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maccheroni, Fabio & Marinacci, Massimo & Rustichini, Aldo, 2006. "Dynamic variational preferences," Journal of Economic Theory, Elsevier, vol. 128(1), pages 4-44, May.
    2. Yehuda Izhakian & David Yermack, 2014. "Risk, Ambiguity, and the Exercise of Employee Stock Options," NBER Working Papers 19975, National Bureau of Economic Research, Inc.
    3. repec:wsi:ijtafx:v:11:y:2008:i:03:n:s0219024908004828 is not listed on IDEAS
    4. Sergio Ortobelli & Svetlozar Rachev & Haim Shalit & Frank Fabozzi, 2009. "Orderings and Probability Functionals Consistent with Preferences," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(1), pages 81-102.
    5. Jakub Trybu{l}a & Dariusz Zawisza, 2014. "Continuous time portfolio choice under monotone preferences with quadratic penalty - stochastic interest rate case," Papers 1404.5408, arXiv.org.
    6. Massimo Guidolin & Francesca Rinaldi, 2013. "Ambiguity in asset pricing and portfolio choice: a review of the literature," Theory and Decision, Springer, vol. 74(2), pages 183-217, February.
    7. Karl-Theodor Eisele & Sonia Taieb, 2013. "Lattice Modules Over Rings Of Bounded Random Variables," Working Papers of LaRGE Research Center 2013-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    8. Faro, José Heleno, 2015. "Variational Bewley preferences," Journal of Economic Theory, Elsevier, vol. 157(C), pages 699-729.
    9. Oyarzun, Carlos & Sarin, Rajiv, 2012. "Mean and variance responsive learning," Games and Economic Behavior, Elsevier, vol. 75(2), pages 855-866.
    10. Thomas Eichner & Daniel Weinreich, 2015. "Welfare stigma and risk taking in the welfare state," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 44(2), pages 319-348, February.
    11. Fabio Maccheroni & Massimo Marinacci & Doriana Ruffino, 2013. "Alpha as Ambiguity: Robust Mean‐Variance Portfolio Analysis," Econometrica, Econometric Society, vol. 81(3), pages 1075-1113, May.
    12. André, Eric, 2014. "Optimal portfolio with vector expected utility," Mathematical Social Sciences, Elsevier, vol. 69(C), pages 50-62.
    13. Kozhan, Roman & Salmon, Mark, 2009. "Uncertainty aversion in a heterogeneous agent model of foreign exchange rate formation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1106-1122, May.
    14. Černý, Aleš & Maccheroni, Fabio & Marinacci, Massimo & Rustichini, Aldo, 2012. "On the computation of optimal monotone mean–variance portfolios via truncated quadratic utility," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 386-395.
    15. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
    16. Beatrice Acciaio, 2007. "Optimal risk sharing with non-monotone monetary functionals," Finance and Stochastics, Springer, vol. 11(2), pages 267-289, April.
    17. Jakub Trybu{l}a & Dariusz Zawisza, 2014. "Continuous time portfolio choice under monotone preferences with quadratic penalty - stochastic factor case," Papers 1403.3212, arXiv.org.
    18. 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.
    19. Eichner, Thomas & Wagener, Andreas, 2012. "Tempering effects of (dependent) background risks: A mean-variance analysis of portfolio selection," Journal of Mathematical Economics, Elsevier, vol. 48(6), pages 422-430.
    20. Filipovic, Damir & Kupper, Michael, 2007. "Monotone and cash-invariant convex functions and hulls," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 1-16, July.
    21. Patrick Cheridito & Tianhui Li, 2009. "Risk Measures On Orlicz Hearts," Mathematical Finance, Wiley Blackwell, vol. 19(2), pages 189-214.
    22. Christoph Czichowsky, 2013. "Time-consistent mean-variance portfolio selection in discrete and continuous time," Finance and Stochastics, Springer, vol. 17(2), pages 227-271, April.
    23. Stadje, Mitja, 2010. "Extending dynamic convex risk measures from discrete time to continuous time: A convergence approach," Insurance: Mathematics and Economics, Elsevier, vol. 47(3), pages 391-404, December.
    24. Zhijun Zhao, 2011. "Preference Relativity, Ambiguity and Social Welfare Evaluation," Working Papers 352011, Hong Kong Institute for Monetary Research.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:icr:wpmath:27-2004. 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: (Simone Pellegrino). General contact details of provider: http://edirc.repec.org/data/icerrit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.