Aspects of Investor Behavior Under Risk
The three sections of this paper support three related conclusions. First, asset demands with the familiar properties of wealth homogeneity and linearity in expected returns follow as close approximations from expected utility maximizing behavior under the assumptions of constant relative risk aversion and joint normally distributed asset returns. Second, although such asset demands exhibit a symmetric coefficient matrix with respect to the relevant vector of expected asset returns, symmetry is not a general property, and the available empirical evidence warrants rejecting it for both institutional and individual investors in the United States. Finally, in a manner analogous to the finite maximum exhibited by quadratic utility, a broad class of mean-variance utility functions also exhibits a form of wealth satiation which necessarily restricts it range of applicability.
|Date of creation:||Apr 1985|
|Date of revision:|
|Publication status:||published as Friedman, Benjamin M. and V. Vance Roley. "Aspects of Investor Behavior Under Risk," Arrow and the Ascent of Modern Economic Theory, ed. by George R. Feiwel. London: MacMillan Press, 1987, pp. 626-653.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
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.:
- Martin Feldstein & James M. Poterba & Louis Dicks-Mireaux, 1981.
"The Effective Tax Rate and the Pretax Rate of Return,"
NBER Working Papers
0740, National Bureau of Economic Research, Inc.
- Feldstein, Martin & Dicks-Mireaux, Louis & Poterba, James, 1983. "The effective tax rate and the pretax rate of return," Journal of Public Economics, Elsevier, vol. 21(2), pages 129-158, July.
- V. Vance Roley, 1982. "The Effect of Federal Debt-Management Policy on Corporate Bond and Equity Yields," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 645-668.
- Cass, David & Stiglitz, Joseph E., 1970. "The structure of investor preferences and asset returns, and separability in portfolio allocation: A contribution to the pure theory of mutual funds," Journal of Economic Theory, Elsevier, vol. 2(2), pages 122-160, June.
- Paul A. Samuelson, 1970. "The Fundamental Approximation Theorem of Portfolio Analysis in terms of Means, Variances and Higher Moments," Review of Economic Studies, Oxford University Press, vol. 37(4), pages 537-542.
- Friedman, Benjamin Morton, 1977. "Financial Flow Variables and the Short-Run Determination of Long-Term Interest Rates," Scholarly Articles 4554309, Harvard University Department of Economics.
- Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
- James Tobin, 1956.
"Liquidity Preference as Behavior Towards Risk,"
Cowles Foundation Discussion Papers
14, Cowles Foundation for Research in Economics, Yale University.
- Roley, V Vance, 1981. "The Determinants of the Treasury Security Yield Curve," Journal of Finance, American Finance Association, vol. 36(5), pages 1103-26, December.
- G. O. Bierwag & M. A. Grove, 1968. "Slutsky Equations for Assets," Journal of Political Economy, University of Chicago Press, vol. 76, pages 114.
- Ray C. Fair & William R. Parke, 1979.
"Full Information Estimates of a Nonlinear Macroeconometric Model,"
Cowles Foundation Discussion Papers
519, Cowles Foundation for Research in Economics, Yale University.
- Fair, Ray C. & Parke, William R., 1980. "Full-information estimates of a nonlinear macroeconometric model," Journal of Econometrics, Elsevier, vol. 13(3), pages 269-291, August.
- 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, 09.
- R. C. Merton, 1970.
"Optimum Consumption and Portfolio Rules in a Continuous-time Model,"
58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Gallant, A. Ronald & Jorgenson, Dale W., 1979. "Statistical inference for a system of simultaneous, non-linear, implicit equations in the context of instrumental variable estimation," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 275-302.
- Irwin Friend & Joel Hasbrouck, . "Effect of Inflation on the Profitability and Valuation of U.S. Corporations," Rodney L. White Center for Financial Research Working Papers 04-82, Wharton School Rodney L. White Center for Financial Research.
- Irwin Friend & Joel Hasbrouck, . "Effect of Inflation on the Profitability and Valuation of U.S. Corporations," Rodney L. White Center for Financial Research Working Papers 4-82, Wharton School Rodney L. White Center for Financial Research.
- K. Borch, 1969. "A Note on Uncertainty and Indifference Curves," Review of Economic Studies, Oxford University Press, vol. 36(1), pages 1-4.
- William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
- Hakansson, Nils H., 1972. "Mean-Variance Analysis in a Finite World," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(04), pages 1873-1880, September.
- Smith, Gary, 1975. "Pitfalls in Financial Model Building: A Clarification," American Economic Review, American Economic Association, vol. 65(3), pages 510-16, June.
- David S. Jones & V. Vance Roley, 1981. "Bliss Points in Mean-Variance Portfolio Models," NBER Technical Working Papers 0019, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1611. 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.