A generalization of Dybvig’s result on portfolio selection with intolerance for decline in consumption

Byung Lim Koo, Hyeng Keun Koo, Jung Lim Koo and ChongSeok Hyun

Economics Letters, 2012, vol. 117, issue 3, 646-649

Abstract: In this note we show the following result of Dybvig (1995) is valid for a general von Neumann–Morgenstern utility function: for an agent who does not tolerate a decline in consumption, the optimal investment out of discretionary wealth (in excess of the perpetuity value of current consumption) in the risky asset does not depend on the risk aversion coefficient of her felicity function locally when she does not adjust her consumption. The homotheticity assumption is not required. An implication of our result is that if an economic agent exhibits non-time-separable preference due to intertemporal linkage of consumption, her risk-taking over a short time period can be independent of her felicity function.

Keywords: Portfolio selection; Intolerance for decline in consumption; Risk taking; Felicity function (search for similar items in EconPapers)
JEL-codes: C61 D91 G11 (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176512004624
Full text for ScienceDirect subscribers only

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:eee:ecolet:v:117:y:2012:i:3:p:646-649

DOI: 10.1016/j.econlet.2012.08.027

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().