Abstract
Considering a simple portfolio selection problem by agents with quadratic utility, an apparently counterintuitive outcome results. When such a choice is over two assets that can be ordered in terms of riskiness, an agent that is more risk averse may optimally invest a larger portion of wealth in the riskier asset. It is shown that such an outcome is not counterintuitive, since for the portfolios from which agents optimally choose, a larger proportion of investment in the riskier asset leads to a less risky portfolio.
Keywords: portfolio selection, choice under uncertainty
Volume
Vol. 29, No. 2, December
Page
137-144
Year
2004
Categories
Financial and Statistical Methods
Asset and Econometric Modeling
Asset Classes
Actuarial Applications and Methodologies
Capital Management
Capital Allocation
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Covariance Methods
Actuarial Applications and Methodologies
Investments
Efficient Frontier
Publications
Geneva Papers on Risk & Insurance Theory
