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Uncertainty Aversion and Convexity in Portfolio Choice

Xueqi Dong

MPRA Paper from University Library of Munich, Germany

Abstract: This note studies the implication of the general notion of uncertainty aversion (Schmeidler 1989) on the problem of portfolio choice, which involves allocating the proportions of fixed capital to several assets. We prove that if an investor is both risk averse and uncertainty averse, then preference in a portfolio space is convex. This result means that the convexity in a portfolio choice problem can be guaranteed without restricting preference representation to a particular functional form.

Keywords: Convexity; Portfolio Choice; Ambiguity; Uncertainty Aversion; Risk Aversion (search for similar items in EconPapers)
JEL-codes: D8 (search for similar items in EconPapers)
Date: 2021-06-11
New Economics Papers: this item is included in nep-mic, nep-rmg and nep-upt
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