TY - JOUR
T1 - Risk aversion, noise, and optimal investments
AU - Hardardottir, Hjördis
AU - Lundtofte, Frederik
PY - 2017/3/1
Y1 - 2017/3/1
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=85018760749&partnerID=8YFLogxK
U2 - 10.3905/jpm.2017.43.3.051
DO - 10.3905/jpm.2017.43.3.051
M3 - Journal article
AN - SCOPUS:85018760749
VL - 43
SP - 51
EP - 59
JO - Journal of Portfolio Management
JF - Journal of Portfolio Management
SN - 0095-4918
IS - 3
ER -