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Defining Bad News: Changes in Return Distributions That Decrease Risky Asset Demand

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  • Burton Hollifield

    (Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

  • Alan Kraus

    (Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

Abstract

We provide a random variable characterization of the necessary and sufficient conditions for a shift of the distribution of rate of return on the risky asset in the two-asset portfolio problem to reduce demand for all strictly risk-averse expected-utility-maximizing investors. We also provide random variable characterizations of the shifts that reduce both demand and expected utility for all strictly risk-averse investors.

Suggested Citation

  • Burton Hollifield & Alan Kraus, 2009. "Defining Bad News: Changes in Return Distributions That Decrease Risky Asset Demand," Management Science, INFORMS, vol. 55(7), pages 1227-1236, July.
    • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:7:p:1227-1236
    DOI: 10.1287/mnsc.1090.1011
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    References listed on IDEAS

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    Cited by:

    1. Christian Gollier & Miles S. Kimball, 2018. "New methods in the classical economics of uncertainty: comparing risks," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(1), pages 5-23, May.
    2. Chuang, O-Chia & Kuan, Chung-Ming & Tzeng, Larry Y., 2017. "Testing for central dominance: Method and application," Journal of Econometrics, Elsevier, vol. 196(2), pages 368-378.

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