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Portfolio Turnpike Theorems, Risk Aversion, and Regularly Varying Utility Functions

Gur Huberman and Stephen Ross
Econometrica
Vol. 51, No. 5 (Sep., 1983), pp. 1345-1361
Published by: The Econometric Society
DOI: 10.2307/1912278
Stable URL: http://www.jstor.org/stable/1912278
Page Count: 17
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Portfolio Turnpike Theorems, Risk Aversion, and Regularly Varying Utility Functions
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Abstract

We consider a portfolio selection problem for an investor who consumes at the end of a finite horizon. With important qualifications on the sufficiency part, we show that convergence of the optimal investment policy as the horizon becomes distant occurs if and only if the corresponding Arrow-Pratt coefficient of relative risk aversion converges as wealth increases. A major step in the proof shows that convergence of the Arrow-Pratt coefficient of relative risk aversion is equivalent to regular variation of the marginal utility function.

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