Portfolio Selection with Monotone Mean-Variance Preferences
Aldo Rustichini and
Marco Taboga ()
No 6, Carlo Alberto Notebooks from Collegio Carlo Alberto
We propose a portfolio selection model based on a class of monotone preferences that coincide with mean-variance preferences on their domain of monotonicity, but differ where mean-variance preferences fail to be monotone and are therefore not economically meaningful. The functional associated to this new class of preferences is the best approximation of the mean-variance functional among those which are monotonic. We solve the portfolio selection problem and we derive a monotone version of the CAPM, which has two main features: (i) it is, unlike the standard CAPM model, arbitrage free, (ii) it has empirically testable CAPM-like relations. The monotone CAPM has thus a sounder theoretical foundation than the standard CAPM and a comparable empirical tractability.
Keywords: Mean-Variance Preferences; Optimal Portfolios (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004, Revised 2007
New Economics Papers: this item is included in nep-fin and nep-fmk
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Journal Article: PORTFOLIO SELECTION WITH MONOTONE MEAN‐VARIANCE PREFERENCES (2009)
Working Paper: Portfolio Selection with Monotone Mean-Variance Preferences (2008)
Working Paper: Portfolio Selection with Monotone Mean-Variance Preferences (2005)
Working Paper: Portfolio Selection with Monotone Mean-Variance Preferences (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:6
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