Asset Proportions in Optimal Portfolios

Josef Hadar and Tae Kun Seo

The Review of Economic Studies, 1988, vol. 55, issue 3, 459-468

Abstract: The paper is concerned with conditions under which the proportion of a given asset in the optimal portfolio of a risk averse agent is at least as large as some given proportion. The paper provides a condition that is necessary and sufficient for such a result to hold. The analysis is then confined to portfolios in which the distributions of assets differ by either a first-degree stochastic dominance shift or by a mean-preserving shift. Examples are provided to show that under some conditions a risk averter may invest a smaller proportion of his wealth in the dominating asset than in the dominated asset. The paper then provides conditions that are necessary and sufficient for a risk averter to invest more in the dominating asset.

Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:55:y:1988:i:3:p:459-468.

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