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EnglishWe propose a portfolio selection model based on a class of monotone preferences that coincide with mean-variance preferences on their domain of monotonicity, but differ where mean-variance preferences fail to be monotone and are therefore not economically meaningful. The functional associated with this new class of preferences is the best approximation of the mean-variance functional among those which are monotonic. We solve the portfolio selection problem andwe derive a monotone version of the capital asset pricing model (CAPM), which has two main features: (i) it is, unlike the standard CAPM model, arbitrage free, (ii) it has empirically testable CAPM-like relations. The monotone CAPM has thus a sounder theoretical foundation than the standard CAPM and a comparable empirical tractability.
| Titolo: | Portfolio selection with monotone mean-variance preferences |
| Data di pubblicazione: | 2009 |
| Data di prima pubblicazione online: | 2009 |
| Autori: | |
| Autori: | Maccheroni, Fabio; Marinacci, Massimo; Rustichini, Aldo; Taboga, Marco |
| Rivista: | MATHEMATICAL FINANCE |
| Abstract: | We propose a portfolio selection model based on a class of monotone preferences that coincide with mean-variance preferences on their domain of monotonicity, but differ where mean-variance preferences fail to be monotone and are therefore not economically meaningful. The functional associated with this new class of preferences is the best approximation of the mean-variance functional among those which are monotonic. We solve the portfolio selection problem andwe derive a monotone version of the capital asset pricing model (CAPM), which has two main features: (i) it is, unlike the standard CAPM model, arbitrage free, (ii) it has empirically testable CAPM-like relations. The monotone CAPM has thus a sounder theoretical foundation than the standard CAPM and a comparable empirical tractability. |
| Codice identificativo Scopus: | 2-s2.0-67650784378 |
| Codice identificativo ISI: | WOS:000267427200006 |
| Appare nelle tipologie: | 01 - Article in academic journal / Articolo su rivista Scientifica |
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http://hdl.handle.net/11565/3715434
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