Comparative Statics Under Uncertainty With The Monotone Likelihood Ratio Order

Soo-Jong Kim and Suyeol Ryu
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Soo-Jong Kim: The Board of Audit and Inspection of Korea
Suyeol Ryu: Busan Development Institute

Korean Economic Review, 2004, vol. 20, 293-304

Abstract: In a simple two asset portfolio problem with one-risky and one-safe asset, Landsberger and Meilijson have shown that a monotone likelihood ratio MLR improvement of random returns of the risky asset increases the demand for the asset for all investors with non-decreasing utilities. However, their comparative static statement is made only for the simpest case where the payoff function is linear in both the choice and the random variable. This paper improves the robustness of their result in two ways. One is that the same comparative static statement can also be made for cases of non-linear payoffs.

Keywords: Portfolio Selection; Stochastic dominance; likelihood ratio; comparative statics (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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