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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Reward-Risk Portfolio Selection and Stochastic Dominance |
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| Institution | University of Zurich |
| Series Name | Working paper series / Institute for Empirical Research in Economics |
| Number | No. 121 |
| ISSN | 1424-0459 |
| Date | 2004 |
| Abstract Text | The portfolio selection problem is traditionally modelled by two different approaches. The first one is based on an axiomatic model of risk-averse preferences, where decision makers are assumed to possess an expected utility function. The second approach, first proposed by Markowitz (1952), reduces the portfolio choice to a set of two criteria, reward and risk. Usually the reward-risk model is not consistent with the first approach, even when the decision is independent from the specific form of the risk-averse expected utility function. In this paper we generalize the reward-risk model for portfolio selection. We define reward measures and risk measures by giving a set of properties these measures should satisfy. One of these properties will be the consistency with second order stochastic dominance, to obtain a link with the expected utility portfolio selection. We characterize reward and risk measures and we discuss the implication for portfolio selection. |
| Official URL | http://www.econ.uzh.ch/wp.html |
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