Tempering effects of (dependent) background risks: A mean-variance analysis of portfolio selection
In a mean variance framework, we analyse risk taking in the presence of a (possibly) dependent background risk, exemplified in a linear portfolio selection problem. We first characterise the comparative statics of changes in the distribution and dependence structure of the background risk. For unfai...
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| Veröffentlicht in: | Journal of mathematical economics 2012-12, Vol.48 (6), p.422-430 |
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| container_end_page | 430 |
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| container_issue | 6 |
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| container_title | Journal of mathematical economics |
| container_volume | 48 |
| creator | Eichner, Thomas Wagener, Andreas |
| description | In a mean variance framework, we analyse risk taking in the presence of a (possibly) dependent background risk, exemplified in a linear portfolio selection problem. We first characterise the comparative statics of changes in the distribution and dependence structure of the background risk. For unfair, undesirable and loss-aggravating increases in background risks (both dependent and independent), we then present necessary and sufficient restrictions on preferences such that greater background uncertainty leads to reduced risk taking. With mean-variance preferences, these restrictions boil down to simple conditions on the marginal rate of substitution between risk and return. They can be easily related to familiar notions such as risk vulnerability, properness or standardness. |
| doi_str_mv | 10.1016/j.jmateco.2012.09.001 |
| format | Article |
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| ispartof | Journal of mathematical economics, 2012-12, Vol.48 (6), p.422-430 |
| issn | 0304-4068 1873-1538 |
| language | eng |
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| source | Elsevier ScienceDirect Journals Complete |
| subjects | Comparative economics Decision making Decision under risk Economic models Mathematical economics Portfolio investments Portfolio selection Preferences Properness Risk assessment Risk aversion Risk vulnerability Standardness Studies Uncertainty Variance analysis |
| title | Tempering effects of (dependent) background risks: A mean-variance analysis of portfolio selection |
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