IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v22y1976i10p1064-1073.html
   My bibliography  Save this article

Optimal Portfolios with One Safe and One Risky Asset: Effects of Changes in Rate of Return and Risk

Author

Listed:
  • Peter C. Fishburn

    (The Pennsylvania State University)

  • R. Burr Porter

    (Southern Methodist University)

Abstract

This paper examines changes in the optimal proportions of investment capital placed in a safe asset and in a risky asset by an expected utility maximizing risk averse investor. If the return for the safe asset increases and the risky asset distribution remains fixed, the optimal proportion invested in the safe asset will increase provided that the investor's absolute risk aversion is nondecreasing or his proportional risk aversion never exceeds unity. Otherwise, it can be optimal to decrease holdings in the safe asset when its return increases. If the return for the safe asset remains fixed and the risky distribution improves by a first degree stochastic dominance change, the optimal proportion invested in the risky asset will increase (or not decrease) provided that proportional risk aversion never exceeds one plus the product of the gross return for the safe asset times absolute risk aversion. Otherwise, it may be optimal to decrease holdings in the risky asset when its distribution improves in the indicated manner.

Suggested Citation

  • Peter C. Fishburn & R. Burr Porter, 1976. "Optimal Portfolios with One Safe and One Risky Asset: Effects of Changes in Rate of Return and Risk," Management Science, INFORMS, vol. 22(10), pages 1064-1073, June.
    • Handle: RePEc:inm:ormnsc:v:22:y:1976:i:10:p:1064-1073
    DOI: 10.1287/mnsc.22.10.1064
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.22.10.1064
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.22.10.1064?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:22:y:1976:i:10:p:1064-1073. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.