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Relative Risk Aversion with Arrow-Debreu Securities

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  • Mitchell, Douglas W

Abstract

This note considers a portfolio problem with a complete set of Arrow-Debreu securities, each of which pays a positive return in only one state. It is shown that an increase in the return to asset i in state i causes an increase (no change; a decrease) in demand for asset i if and only if relative risk aversion evaluated in state i is less than (equal to; greater than) unity. Demands for all other assets change in the opposite direction. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Mitchell, Douglas W, 1994. "Relative Risk Aversion with Arrow-Debreu Securities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 257-258, February.
    • Handle: RePEc:ier:iecrev:v:35:y:1994:i:1:p:257-58
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    Cited by:

    1. Eeckhoudt, Louis & Etner, Johanna & Schroyen, Fred, 2009. "The values of relative risk aversion and prudence: A context-free interpretation," Mathematical Social Sciences, Elsevier, vol. 58(1), pages 1-7, July.
    2. Kangoh Lee, 2012. "Uncertain indemnity and the demand for insurance," Theory and Decision, Springer, vol. 73(2), pages 249-265, August.
    3. Caballe, Jordi & Pomansky, Alexey, 1996. "Mixed Risk Aversion," Journal of Economic Theory, Elsevier, vol. 71(2), pages 485-513, November.
    4. Hens, Thorsten & Loeffler, Andras, 1995. "Gross substitution in financial markets," Economics Letters, Elsevier, vol. 49(1), pages 39-43, July.

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