A note on asset proportions, stochastic dominance, and the 50% rule

A note on asset proportions, stochastic dominance, and the 50% rule

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Article ID: iaor2001193
Country: United States
Volume: 45
Issue: 12
Start Page Number: 1724
End Page Number: 1727
Publication Date: Dec 1999
Journal: Management Science
Authors: ,
Keywords: investment, decision: applications
Abstract:

In this note we analyze the composition of an optimal portfolio by considering the cumulative conditional expected outcome of two dependent assets. We develop a conditional stochastic dominance relation and show that for any concave von Neumann–Morgenstern utility function, the proportion of wealth invested in the dominant asset will be greater than 50%.

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