Aspects of Investor Behavior Under Risk

41 Pages Posted: 24 Jul 2001

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

V. Vance Roley

University of Hawaii - Shidler College of Business; National Bureau of Economic Research (NBER)

Date Written: April 1985

Abstract

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.

Suggested Citation

Friedman, Benjamin M. and Roley, V. Vance, Aspects of Investor Behavior Under Risk (April 1985). NBER Working Paper No. w1611. Available at SSRN: https://ssrn.com/abstract=268185

Benjamin M. Friedman (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Room 127
Cambridge, MA 02138
United States
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National Bureau of Economic Research (NBER)

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V. Vance Roley

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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