Almost expectation and excess dependence notions

Michel Denuit (), Rachel Huang and Larry Tzeng

Theory and Decision, 2015, vol. 79, issue 3, 375-401

Abstract: This paper weakens the expectation dependence concept due to Wright (Theory Decis 22:111–124, 1987 ) and its higher-order extensions proposed by Li (J Econ Theory 146:372–391, 2011 ) to conform with the preferences generating the almost stochastic dominance rules introduced in Leshno and Levy (Manag Sci 48:1074–1085, 2002 ). A new dependence concept, called excess dependence is introduced and studied in addition to expectation dependence. This new concept coincides with expectation dependence at first-degree but provides distinct higher-order extensions. Three applications, to portfolio diversification, to the determination of the sign of the equity premium in the consumption-based CAPM, and to optimal investment in the presence of a background risk, illustrate the usefulness of the approach proposed in the present paper. Copyright Springer Science+Business Media New York 2015

Keywords: Almost stochastic dominance; Portfolio theory; Diversification; Optimal investment; Background risk (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Working Paper: Almost expectation and excess dependence notions (2015)
Working Paper: Almost Expectation and Excess Dependence Notions (2013)
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DOI: 10.1007/s11238-014-9476-6

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