Disparity, Shortfall, and Twice-Endogenous HARA Utility

M. Ryan Haley, M Kevin McGee and Todd Walker

Econometric Reviews, 2013, vol. 32, issue 4, 524-541

Abstract: We derive a mapping between the shortfall-minimizing portfolio selection based on higher-order entropy measures and expected utility theory. We show that the family of HARA utility functions has a minimum-divergence, shortfall-based representation. This facilitates an interpretation in which the risk aversion parameters and the type of risk aversion arise endogenously. We provide a numerical example illustrating this interpretation.

Date: 2013
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Working Paper: Disparity, Shortfall, and Twice-Endogenous HARA Utility (2009)
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DOI: 10.1080/07474938.2012.690672

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