Does the More Risk-Averse Investor Hold a Less Risky Portfolio?

18 Pages Posted: 16 Nov 2005

See all articles by George Wong

George Wong

The Hong Kong Polytechnic University

Date Written: November 15, 2005


We study the suitability of using absolute risk aversion as a measure of willingness to take risk in the Arrow-Debreu portfolio framework. We define a global measure of risk for the Arrow-Debreu portfolio - 'conservatism', which is measured by the sensitivity of portfolio payoff to the change in the market return. We show that the concept of 'more conservative' is stronger than that of 'more risk-averse'. A higher absolute risk aversion is only necessary but not sufficient to induce a less risky Arrow-Debreu portfolio. Our results not only challenge the well-accepted notion that a more risk-averse investor holds a less risky portfolio, but also suggest a stronger measure - conservatism - for evaluating the riskiness of portfolio.

Keywords: Conservatism, Absolute risk aversion, Complete portfolio, More risk-averse, More conservative

JEL Classification: G11, D52

Suggested Citation

Wong, George, Does the More Risk-Averse Investor Hold a Less Risky Portfolio? (November 15, 2005). Available at SSRN: or

George Wong (Contact Author)

The Hong Kong Polytechnic University ( email )

School of Accounting and Finance
Hung Hom, Kowloon, 0
Hong Kong
852 3400 3459 (Phone)
852 2330 9845 (Fax)

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