Abstract
Oliver Hart proved the impossibility of deriving general comparative static properties in portfolio Instead, we derive new comparative statics for the distribution of payoffs: A is less risk averse than B iff A’s payoff is always distributed as B’s payoff plus a non-negative random variable plus conditional mean- zero noise. If either agent has non increasing absolute risk aversion, the non-negative part can be chosen to be constant. The main result also holds in some incomplete markets with two assets or two-fund separation, and in multiple periods for a mixture of payoff distributions over time (but not at every point in
time).
Keywords: Risk aversion; Portfolio theory; Stochastic dominance; Complete markets; Two-fund separation
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