Wealth, Information Acquisition, and Portfolio Choice
I solve (with an approximation) a Grossman-Stiglitz economy under general preferences, thus allowing for wealth effects. Because information generates increasing returns, decreasing absolute risk aversion, in conjunction with the availability of costly information, is sufficient to explain why wealt...
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| Veröffentlicht in: | The Review of financial studies 2004-10, Vol.17 (3), p.879-914 |
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| container_end_page | 914 |
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| container_title | The Review of financial studies |
| container_volume | 17 |
| creator | Peress, Joël |
| description | I solve (with an approximation) a Grossman-Stiglitz economy under general preferences, thus allowing for wealth effects. Because information generates increasing returns, decreasing absolute risk aversion, in conjunction with the availability of costly information, is sufficient to explain why wealthier households invest a larger fraction of their wealth in risky assets. One no longer needs to resort to decreasing relative risk aversion, an empirically questionable assumption. Furthermore, I show how to distinguish empirically between these two explanations. Finally, I find that the availability of costly information exacerbates wealth inequalities. |
| doi_str_mv | 10.1093/rfs/hhg056 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0893-9454 |
| ispartof | The Review of financial studies, 2004-10, Vol.17 (3), p.879-914 |
| issn | 0893-9454 1465-7368 |
| language | eng |
| recordid | cdi_proquest_miscellaneous_37960809 |
| source | Jstor Complete Legacy; Oxford University Press Journals All Titles (1996-Current); EBSCOhost Business Source Complete |
| subjects | Approximation Economic investment Economics Finance Financial investments Financial portfolios Income inequality Information Investment policy Investors Mathematical models Portfolio analysis Risk aversion Risk management Stock prices Stock shares Studies Wealth |
| title | Wealth, Information Acquisition, and Portfolio Choice |
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