Risk taking with additive and multiplicative background risks

• 成果类型: Article
• 署名作者: Franke, Guenter; Schlesinger, Harris; Stapleton, Richard C.
• 署名单位: University of Konstanz; University of Alabama System; University of Alabama Tuscaloosa; University of Manchester
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2011.03.008
• 发表日期: 2011
• 页码: 1547-1568
• 关键词: Derived risk aversion; Additive; multiplicative background risk

摘要

We examine the effects of background risks on optimal portfolio choice. Examples of background risks include uncertain labor income, uncertainty about the terminal value of fixed assets such as housing and uncertainty about future tax liabilities. While some of these risks are additive and have been amply studied, others are multiplicative in nature and have received far less attention. The simultaneous effect of both additive and multiplicative risks has hitherto not received attention and can explain some paradoxical choice behavior. We rationalize such behavior and show how background risks might lead to seemingly U-shaped relative risk aversion for a representative investor. (C) 2011 Elsevier Inc. All rights reserved.