Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-29T19:44:09.318Z Has data issue: false hasContentIssue false
  • English
  • Français

A Note on Indifference Curves in the Mean-Variance Model

Published online by Cambridge University Press:  19 October 2009

Joseph T. Williams
Get access Rights & Permissions [Opens in a new window]

Extract

The relationship between an investor's attitude toward risk and the shape of his preference functions has long been recognized in both the general portfolio problem and the mean-variance model. By contrast, the literature has largely ignored the connection between general measures of an investor's attitude toward risk and the shape of his mean-variance or mean-standard deviation indifference curves. Yet this relationship is significant. Through general measures of risk aversion, assumptions about an investor's behavior under uncertainty imply restrictions on indifference curves. Conversely, assumptions about indifference curves impose restrictions on an investor's behavior under uncertainty. The development of this relationship and its implications is the objective of this note.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 12 , Issue 1 , March 1977 , pp. 121 - 126
Copyright
Copyright © School of Business Administration, University of Washington 1977

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.)

References

REFERENCES

[1]Arrow, K.Aspects of the Theory of Risk Bearing. Helsinki: Yrjö Jahnssonin Säätiö, 1965.Google Scholar
[2]Borch, K. “A Note on Uncertainty and Indifference Curves.” Review of Economic Studies, Vol. 36 (January 1969), pp. 1–4.CrossRefGoogle Scholar
[3]Feldstein, M. “A Mean-Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection.” Review of Economic Studies, Vol. 36 (January 1969), pp. 5–12.CrossRefGoogle Scholar
[4]Merton, R. “Optimum Consumption and Portfolio Rules in a Continuous Time Model.” Journal of Economic Theory, Vol. 3 (December 1971), pp. 373–413.CrossRefGoogle Scholar
[5]Miller, S. “Measures of Risk Aversion: Some Clarifying Comments.” Journal of Financial and Quantitative Analysis, Vol. 10 (June 1975), pp. 299–309.CrossRefGoogle Scholar
[6]Pratt, J. “Risk Aversion in the Small and in the Large.” Econometrica, Vol. 32 (January–April 1964), pp. 122–136.CrossRefGoogle Scholar
[7]Samuelson, P. “General Proof that Diversification Pays.” Journal of Financial and Quantitative Analysis, Vol. 2 (March 1967), pp. 1–13.CrossRefGoogle Scholar
[8]Samuelson, P. “The Fundamental Approximation Theorem of Portfolio Analysis in Terms of Means, Variances and Higher Moments.” Review of Economic Studies, Vol. 37 (October 1970), pp. 537–542.CrossRefGoogle Scholar
[9]Tobin, J. “Liquidity Preference as Behavior towards Risk.” Review of Economic Studies, Vol. 25 (February 1958), pp. 65–86.CrossRefGoogle Scholar
[10]Tobin, J. “Comment on Borch and Feldstein.” Review of Economic Studies, Vol. 36 (January 1969), pp. 13–14.CrossRefGoogle Scholar