Individual Risk And Return Preferences: A Preliminary Survey
- Source:
- Stanford Knowledgebase
FREE Registration is required
Overview: Many models of capital market equilibrium are derived from assumptions about the preferences of a so-called representative investor. In essence, security prices are assumed to be set in a manner that would lead to the equality of demand and supply if every investor had such preferences. Some approaches simply assume that every investor has the preferences of the representative investor. Others explicitly model diverse investors and derive the preferences of the representative investor by aggregating the preferences of actual investors. However, even in such approaches, each investor is assumed to have preferences that can be described with a particular type of function, with individuals differing (if at all) only with respect to one or more of the parameters of the specified family. The results of this preliminary survey suggest that the distribution builder approach can be used to obtain important information about the preferences of individual investors -- information that can prove useful for both those building models of the behavior of capital markets and for those who provide advice to individuals concerning desirable long-term investment strategies. The results obtained here are provocative, but their generality can only be determined with further research.
(Is this item miscategorized? Does it need more tags? Let us know.)
Format: HTML | Date: Sep 2001 | Pages: 1
