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Comparative Statics Under Uncertainty With The Monotone Likelihood Ratio Order

Author

Listed:
  • Soo-Jong Kim

    (The Board of Audit and Inspection of Korea)

  • Suyeol Ryu

    (Busan Development Institute)

Abstract

In a simple two asset portfolio problem with one-risky and one-safe asset, Landsberger and Meilijson have shown that a monotone likelihood ratio MLR improvement of random returns of the risky asset increases the demand for the asset for all investors with non-decreasing utilities. However, their comparative static statement is made only for the simpest case where the payoff function is linear in both the choice and the random variable. This paper improves the robustness of their result in two ways. One is that the same comparative static statement can also be made for cases of non-linear payoffs.

Suggested Citation

  • Soo-Jong Kim & Suyeol Ryu, 2004. "Comparative Statics Under Uncertainty With The Monotone Likelihood Ratio Order," Korean Economic Review, Korean Economic Association, vol. 20, pages 293-304.
    • Handle: RePEc:kea:keappr:ker-20041231-20-2-05
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    Citations

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    Cited by:

    1. Suyeol Ryu & Iltae Kim & Soo-Jong Kim, 2010. "Comparative Statics under Uncertainty with the Monotone Probability Ratio Order Revisited," Korean Economic Review, Korean Economic Association, vol. 26, pages 203-222.

    More about this item

    Keywords

    Portfolio Selection; Stochastic dominance; likelihood ratio; comparative statics;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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