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- Title
Diversification Theorems for Subsets of Risk Averters.
- Authors
Russell, William R.; Tae Kun Seo
- Abstract
The strategy diversification has been demonstrated to be optimal for risk averting investors under a variety of conditions. Of course, diversification remains the best strategy under the same conditions even if agents are restricted to a proper subset of all risk averters. When agents are so restricted, new sufficient conditions which differ significantly from previously published results can be derived. One interesting subset of risk averters can be defined by designating a particular agent to be the least risk averse one in the set and only agents at least as risk averse as he are then admissible. Sets of this type are useful in those cases where it is simply inappropriate to insist that the admissible risk averters must range to the risk neutral agent. Nonetheless, it should be observed that if this type of subset is bounded by a risk neutral agent, we have the special case where the subset then coincides with the set of all risk averters. In this paper we shall consider two types of sets of risk averters but will focus principally on the type of subsets described above. We shall provide new sufficient conditions under which diversified portfolios are unanimously preferred to the specialized ones. With a restricted subset of risk averters we can show that the condition of equal means for assets is no longer necessary for a unanimous decision to diversify.
- Subjects
PORTFOLIO management (Investments); RISK; INVESTORS; RISK aversion; STOCHASTIC analysis; UNCERTAINTY; INVESTMENTS; MATHEMATICAL models; UTILITY theory; ECONOMICS
- Publication
Review of Economic Studies, 1979, Vol 46, Issue 3, p555
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2297021