Heterogeneity of Investors and Asset Pricing in a Risk-Value World



a more aggressive investor, i.e. an investor, who uses a higher exogenous
benchmark return or, in the case of an endogenous benchmark, demands a
higher expected portfolio return.

Proposition 6 characterizes the sharing rules of investors.

Proposition 6 ; Consider two investors i and j who have HARA-risk func-
tions with the same
7.

a) Suppose that the risk sensitivity, ∣1∩ A* for 7 > -∞ resp. BWq for
7 = -∞, is higher for investor i than for investor j and/or she demands
a higher expected portfolio return. Then investor i,s sharing rule is strictly
convex relative to that of investor j.

bl) Suppose that for both investors the risk sensitivity is the same, but
investor i demands a higher expected portfolio return. Then there exists some
portfolio return R1 such that

Ri[=][>]Rj   for   Rj < [=][>]R1.

b2) Suppose that the risk sensitivity is higher for investor i but both in-
vestors demand the same expected portfolio return. Then there exist R0 and
R°° with R0
R00 such that

Ri > Rj for Rj < R0 and Rj > R00,

Ri < Rj   for R0 Rj < R00.

Proof. See Appendix E.

25



More intriguing information

1. An Efficient Circulant MIMO Equalizer for CDMA Downlink: Algorithm and VLSI Architecture
2. Experimental Evidence of Risk Aversion in Consumer Markets: The Case of Beef Tenderness
3. Global Excess Liquidity and House Prices - A VAR Analysis for OECD Countries
4. The name is absent
5. Growth and Technological Leadership in US Industries: A Spatial Econometric Analysis at the State Level, 1963-1997
6. Stable Distributions
7. Weather Forecasting for Weather Derivatives
8. Improving the Impact of Market Reform on Agricultural Productivity in Africa: How Institutional Design Makes a Difference
9. The name is absent
10. On the Existence of the Moments of the Asymptotic Trace Statistic
11. Estimated Open Economy New Keynesian Phillips Curves for the G7
12. DURABLE CONSUMPTION AS A STATUS GOOD: A STUDY OF NEOCLASSICAL CASES
13. Altruism with Social Roots: An Emerging Literature
14. ARE VOLATILITY EXPECTATIONS CHARACTERIZED BY REGIME SHIFTS? EVIDENCE FROM IMPLIED VOLATILITY INDICES
15. TOMOGRAPHIC IMAGE RECONSTRUCTION OF FAN-BEAM PROJECTIONS WITH EQUIDISTANT DETECTORS USING PARTIALLY CONNECTED NEURAL NETWORKS
16. The economic value of food labels: A lab experiment on safer infant milk formula
17. The Macroeconomic Determinants of Volatility in Precious Metals Markets
18. From Communication to Presence: Cognition, Emotions and Culture towards the Ultimate Communicative Experience. Festschrift in honor of Luigi Anolli
19. The name is absent
20. Imitation in location choice