Unreasonable rationality?
Article Abstract:
An Arrow-Debreu framework is used to examine how changes in the optimal fraction of wealth invested in a security are affected by exogenous changes in security returns and wealth. The analysis points to the counterintuitive but totally rational conclusion that fractional demands may remain unaffected or may even decline when security returns exogenously increase. It is shown that this can happen without disturbing the wealth effect. These results are applied to ordinary securities and a complete analytical solution is developed. It is shown that portfolio managers should be cautious in concluding that holdings in any particular stock should be increased or decreased based solely on the information that the return from holding an underlying pure security will improve.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1995
User Contributions:
Comment about this article or add new information about this topic:
Stochastic shortest path problems with piecewise-linear concave utility functions
Article Abstract:
A study was conducted to analyze a stochastic shortest path problem wherein the arc lengths are independent random variables supporting a normal distribution. The optimal path optimizes the expected utility function that was piecewise-linear, concave and nondecreasing. Two algorithms were designed to determine solutions to large problem instances. The algorithms were then integrated in labelling processesand their performance evaluated in a set of medium-sized problems in FORTRAN. Results indicated that the performance of the algorithms correlates with the curvature of the piecewise linear utility function. The findings also showed the effectiveness of the algorithms in determining solutions to large problems.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1998
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: The penetration of ISO 9000 certification in Greek industries. ISO 9000 value-added auditing
- Abstracts: The stakeholder theory of the corporation: concepts, evidence, and implications. Whatever happened to the excellent marketers? A study of financial performance and excellent marketing
- Abstracts: What do the leading indicators lead? On the formation of expected inflation under various conditions: some survey evidence
- Abstracts: The angel of malignity: the cold beauty of Katherine Anne Porter. Critics and their discontents
- Abstracts: Partnering in a unit price environment. Application of the concept of accord and satisfaction in dealing with project invoice and payment operations