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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. | |
| Digital Object Identifier (DOI): | http://dx.doi.org/10.1111/j.1467-9965.2009.00376.x | |
| 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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