Conditions ensuring the decomposition of asset demand for all risk-averse investors

Khaïs Dachraoui and Georges Dionne ()
Additional contact information
Khaïs Dachraoui: Manulife Financial

No 04-1, Working Papers from HEC Montreal, Canada Research Chair in Risk Management

Abstract: We explore how the demand for a risky asset can be decomposed into an investment effect and a hedging effect by all risk-averse investors. This question has been shown to be complex when considered outside of the mean-variance framework. We restrict dependence among returns on the risky assets to quadrant dependence and find that the demand for one risky asset can be decomposed into an investment component based on the risk premium offered by the asset and a hedging component used against the fluctuations in the return on the other risky asset. We also discuss how the class of quadrant dependent distributions is related to that of two-fund separating distributions. This contribution opens up the search for broader distributional hypotheses suitable to asset demand models. Examples are discussed.

Keywords: Portfolio choice; investment effect; hedging effect; quadrant dependence; two-fund separation; asset demand model (search for similar items in EconPapers)
JEL-codes: D80 G10 G11 G12 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2006-07-25
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.risksresearch.com/_files/ugd/a6eed3_48 ... 804e6654d530300a.pdf Full text (application/pdf)

Related works:
Journal Article: Conditions Ensuring the Decomposition of Asset Demand for All Risk-Averse Investors (2007)
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:ris:crcrmw:2004_001

Access Statistics for this paper

More papers in Working Papers from HEC Montreal, Canada Research Chair in Risk Management Contact information at EDIRC.
Bibliographic data for series maintained by Claire Boisvert ().