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Ross' Measure of Risk Aversion and Portfolio Selection

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  • Hadar, Josef
  • Seo, Tae Kun

Abstract

This article shows that if Ross's definition of riskier is replaced by a more traditional definition, such as a mean-preserving spread or second-degree stochastic dominance, then the application of Ross's stronger measure of risk aversion to the portfolio problem may no longer produce the desired result. It is also shown that the stronger measure may not perform satisfactorily when applied to exponential utility functions. Copyright 1990 by Kluwer Academic Publishers

Suggested Citation

  • Hadar, Josef & Seo, Tae Kun, 1990. "Ross' Measure of Risk Aversion and Portfolio Selection," Journal of Risk and Uncertainty, Springer, vol. 3(1), pages 93-99, March.
    • Handle: RePEc:kap:jrisku:v:3:y:1990:i:1:p:93-99
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    Cited by:

    1. Gelles, Gregory M. & Mitchell, Douglas W., 1999. "Ordering utility functions based on mean-seeking behavior," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(3), pages 317-328.
    2. Timothy Mathews, 2005. "Meaning Of ‘More Risk Averse’ When Preferences Are Over Mean And Variance," Manchester School, University of Manchester, vol. 73(1), pages 75-91, January.

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