Details
| Original language | English |
|---|---|
| Pages (from-to) | 422-430 |
| Number of pages | 9 |
| Journal | Journal of mathematical economics |
| Volume | 48 |
| Issue number | 6 |
| Early online date | 10 Sept 2012 |
| Publication status | Published - Dec 2012 |
Abstract
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.
Keywords
- Decision under risk, Properness, Risk vulnerability, Standardness
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Mathematics(all)
- Applied Mathematics
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In: Journal of mathematical economics, Vol. 48, No. 6, 12.2012, p. 422-430.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Tempering effects of (dependent) background risks
T2 - A mean-variance analysis of portfolio selection
AU - Eichner, Thomas
AU - Wagener, Andreas
PY - 2012/12
Y1 - 2012/12
N2 - 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.
AB - 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.
KW - Decision under risk
KW - Properness
KW - Risk vulnerability
KW - Standardness
UR - http://www.scopus.com/inward/record.url?scp=84867901054&partnerID=8YFLogxK
U2 - 10.1016/j.jmateco.2012.09.001
DO - 10.1016/j.jmateco.2012.09.001
M3 - Article
AN - SCOPUS:84867901054
VL - 48
SP - 422
EP - 430
JO - Journal of mathematical economics
JF - Journal of mathematical economics
SN - 0304-4068
IS - 6
ER -