Increasingly Mean-Seeking Utility Functions and N-Asset Portfolios

Abstract

The literature exhibits a dearth of comparative static results for n-asset portfolios. This paper shows a necessary and sufficient condition on utility functions for an increase in initial wealth never to decrease expected per-dollar final wealth in optimal n-asset portfolios. For the resulting utility function class the literature provides a measure of relative risk of portfolios; it is shown here that relative risk never decreases in optimal n-asset portfolios as initial wealth rises.

Department(s)

Economics

Keywords and Phrases

Broadly decreasing relative risk aversion; Mean-seeking; Multi-asset portfolios; Relative risk; Risk-value models; Utility functions

International Standard Serial Number (ISSN)

1062-9769

Document Type

Article - Journal

Document Version

Citation

File Type

text

Language(s)

English

Rights

© 2002 Board of Trustees of the University of Illinois, All rights reserved.

Publication Date

01 Jan 2002

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