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Defining Bad News: Changes in Return Distributions That Decrease Risky Asset Demand

Burton Hollifield and Alan Kraus
Management Science
Vol. 55, No. 7 (Jul., 2009), pp. 1227-1236
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/40539208
Page Count: 10
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Defining Bad News: Changes in Return Distributions That Decrease Risky Asset Demand
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Abstract

We provide a random variable characterization of the necessary and sufficient conditions for a shift of the distribution of rate of return on the risky asset in the two-asset portfolio problem to reduce demand for all strictly risk-averse expected-utility-maximizing investors. We also provide random variable characterizations of the shifts that reduce both demand and expected utility for all strictly risk-averse investors.

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