Disparity, Shortfall, and Twice-Endogenous HARA Utility

Todd Walker, M. Ryan Haley and M Kevin McGee

MPRA Paper from University Library of Munich, Germany

Abstract: We demonstrate that shortfall-minimizing portfolio selection based on the Cressie- Read family of divergence measures maps to the HARA family. This means that all HARA utility functions can be interpreted as “endogenous” in the sense described in Stutzer (2003), and that traditional HARA expected utility maximization has an analog to the behavioral notion that an investor seeks to organize their selection of assets to minimize the probability of realizing a return below some pre-determined target or benchmark rate. We show that not only do risk aversion parameters arise endogenously, given the choice set, but that the type of risk aversion, relative or constant, is also determined endogenously. We also connect this approach to portfolio selection to some topics in behavioral economics.

Keywords: Entropy; Measure Change; Cressie-Read; Endogenous Utility; Benchmark (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2009-09-06
New Economics Papers: this item is included in nep-evo and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/17139/1/MPRA_paper_17139.pdf original version (application/pdf)

Related works:
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:pra:mprapa:17139

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().