IDEAS home Printed from https://ideas.repec.org/a/wsi/qjfxxx/v01y2011i03ns2010139211000134.html
   My bibliography  Save this article

Asset Pricing with Status Risk

Author

Listed:
  • Yoel Krasny

    (Stern School of Business, New York University, USA)

Abstract

This paper examines the impact of status-seeking considerations on investors' portfolio choices and asset prices in a general equilibrium setting. The economy studied in this paper consists of traditional ("Markowitz") investors as well as status-seekers who are concerned about relative wealth. The model highlights the strategic and interdependent nature of portfolio selection in such a setting: Low-status investors look for portfolio choices that maximize their chances of moving up the ladder while high-status investors look to maintain the status quo and hedge against these choices of the low-status investors. In equilibrium, asset returns obey a novel two-factor model in which one factor is the traditional market factor and the other is a particular "high volatility factor" that does not appear to have been identified so far in the theoretical or empirical literature. This two-factor model found significant support when tested with stock market data. Of particular interest is that the model and the empirical results attribute the low returns on idiosyncratic volatility stocks to their covariance with the portfolio of highly volatile stocks held by investors with relatively low status.

Suggested Citation

  • Yoel Krasny, 2011. "Asset Pricing with Status Risk," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 1(03), pages 495-549.
    • Handle: RePEc:wsi:qjfxxx:v:01:y:2011:i:03:n:s2010139211000134
    DOI: 10.1142/S2010139211000134
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S2010139211000134
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S2010139211000134?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Smoluk, H.J. & Voyer, John, 2014. "The spirit of capitalism among the income classes," Review of Financial Economics, Elsevier, vol. 23(1), pages 1-9.
    2. Liu, Chia-Ying & Wang, Wei-Neng, 2020. "On the optimality of social status seeking," Economic Modelling, Elsevier, vol. 93(C), pages 520-525.
    3. Dijk, Oege & Holmen, Martin & Kirchler, Michael, 2014. "Rank matters–The impact of social competition on portfolio choice," European Economic Review, Elsevier, vol. 66(C), pages 97-110.
    4. H.J. Smoluk & John Voyer, 2014. "The spirit of capitalism among the income classes," Review of Financial Economics, John Wiley & Sons, vol. 23(1), pages 1-9, January.
    5. Chia-Ying Chan & Christine W. Lai & Liang-Chung Lee, 2017. "Strategic Choice of Risk: Evidence from Mutual Fund Families," Journal of Financial Services Research, Springer;Western Finance Association, vol. 51(1), pages 125-163, February.

    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:wsi:qjfxxx:v:01:y:2011:i:03:n:s2010139211000134. 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: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/qjf/qjf.shtml .

    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.