A Reexamination of the Relationship Between Preferences and Moment Orderings by Rational Risk-Averse Investors

Patrick L. Brockett () and James R. Garven ()
Additional contact information
Patrick L. Brockett: Graduate School of Business, Department of Management Science and Information Systems, University of Texas, Austin, TX 78712.
James R. Garven: Department of Finance, E.J. Ourso College of Business Administration, Louisiana State University, Baton Rouge, LA 70803.

The Geneva Risk and Insurance Review, 1998, vol. 23, issue 2, 127-137

Abstract: This article examines the relationship between risk, return, skewness, and utility-based preferences. Examples are constructed showing that, for any commonly used utility function, it is possible to have two continuous unimodal random variables X and Y with positive and equal means, X having a larger variance and lower positive skewness than Y, and yet X has larger expected utility than Y, contrary to persistent folklore concerning U‴ > 0 implying skewness preference for risk averters. In additon, it is shown that ceteris paribus analysis of preferences and moments, as occasionally used in the literature, is impossible since equality of higher-order central moments implies the total equality of the distributions involved. The Geneva Papers on Risk and Insurance Theory (1998) 23, 127–137. doi:10.1023/A:1008674127340

Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v23/n2/pdf/grir1998105a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v23/n2/full/grir1998105a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:23:y:1998:i:2:p:127-137

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().