Hostname: page-component-7b7567c8c-jswmv Total loading time: 0 Render date: 2026-11-15T11:36:06.794Z Has data issue: false hasContentIssue false
  • English
  • Français

Mean-Variance Analysis in a Finite World

Published online by Cambridge University Press:  19 October 2009

Nils H. Hakansson
Get accessRights & Permissions [Opens in a new window]

Extract

Despite the enormous attention received by the single-period mean-variance model in the literature, its structural relationship to the empirical world is still largely unexplored. The purpose of this note is to show that when certain consistency requirements and equilibrium conditions in the financial markets are taken into account, the collective judgment of the present literature concerning the mean-variance approach is in some respects too lenient and in other respects too harsh. In addition, it will be noted that the mean-variance model can only achieve consistency with the von Neumann-Morgenstern postulates and absolute preference (also known as first-order stochastic dominance) at the price of a severe upper bound on the risk aversion that can be possessed by the decision maker.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 7 , Issue 4 , September 1972, pp. 1873 - 1880
Copyright
Copyright © School of Business Administration, University of Washington 1972

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

[1]Bierwag, G.O., and Grove, M.A.. “Indifference Curves in Asset Analysis.” Economic Journal, June 1966.Google Scholar
[2]Borch, Karl. “A Note on Uncertainty and Indifference Curves.” Review of Economic Studies, January 1969.Google Scholar
[3]Borch, Karl. “A Note on Utility and Attitudes to Risk.” Management Science, July 1963.Google Scholar
[4]Cootner, Paul. The Random Character of Stock Market Prices. Cambridge, Mass.” MIT Press, 1964.Google Scholar
[5]Feldstein, M.S. “Mean-Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection.” Review of Economic Studies, January 1969.Google Scholar
[6]Hadar, Joseph, and Russell, W.R.. “Rules for Ordering Uncertain Prospects.” American Economic Review, March 1969.Google Scholar
[7]Hakansson, Nils. “Optimal Investment and Consumption Strategies Under Risk for a Class of Utility Functions.” Econometrica, September 1970.Google Scholar
[8]Hakansson, Nils. “Multiperiod Mean-Variance Analysis: Toward a General Theory of Portfolio Choice.” Journal of Finance, September 1971.CrossRefGoogle Scholar
[9]Hakansson, Nils. “Mean-Variance Analysis of Average Compound Returns.” Capital Market Theory. Edited by Scholes, Myron. Praeger (forthcoming).Google Scholar
[10]Hanoch, Giora, and Levy, Haim. “The Efficiency Analysis of Choices Involving Risk.” Review of Economic Studies, July 1969.CrossRefGoogle Scholar
[11]Tobin, James. “Comment on Borch and Feldstein.” Review of Economic Studies, January 1969.Google Scholar
[12]Tobin, James. “Liquidity Preference as Behavior Towards Risk.” Review of Economic Studies, February 1958.Google Scholar