Risk aversion, noise, and optimal investments

Hjördis Hardardottir, Frederik Lundtofte

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Abstrakt

In contrast to the efficient market hypothesis (EMH), the noisy market hypothesis (NMH) asserts that prices are but noisy indications of fundamental values. The authors study losses in certainty equivalents of investing according to one hypothesis (NMH or EMH) when the other is true. Their findings suggest that, for reasonable parameter values, investing according to the EMH when the NMH is true yields lower losses than investing according to the NMH when the EMH is true. Further, investing according to the right hypothesis is much more important for risk-tolerant investors than for risk-averse investors.

OriginalsprogEngelsk
TidsskriftJournal of Portfolio Management
Vol/bind43
Udgave nummer3
Sider (fra-til)51-59
Antal sider9
ISSN0095-4918
DOI
StatusUdgivet - 1 mar. 2017
Udgivet eksterntJa

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