Outside of a sole globally risk averse agent, all other agents in markets are risk seeking agents

Oghenovo A. Obrimah

Finance Research Letters, 2023, vol. 54, issue C

Abstract: There exists debate as to whether markets consist of heterogeneous realizations of risk averse agents, or a mix of risk averse and risk seeking agents. This study provides formal theoretical evidence that agents in any market are parameterized by either of global risk aversion (preference for assets whose market beta (β) approximate one), or risk seeking preferences (preference for assets whose beta satisfy, β>1, β→∞). The demand for assets whose beta satisfy, β<1, β↛1, is premised, not on risk preferences, but on risk averse or risk seeking agents’ demand for positive Net Present Value assets that exhaust their investment capital.

Keywords: Risk preferences; Decision making; Risk tolerance; Choice under uncertainty; Markets; Wealth (search for similar items in EconPapers)
JEL-codes: D81 D83 D84 G11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323000892

DOI: 10.1016/j.frl.2023.103715

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