Dominated assets, the expected utility maxim, and mean-variance portfolio selection
Dominated assets, the expected utility maxim, and mean-variance portfolio selection
Date
2006
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Authors
Fehr, David
Journal Title
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Volume Title
Publisher
Southern New Hampshire University
Abstract
The purpose of this paper is to consider optimal portfolio selection when a dominated asset is included in the menu of investment opportunities. We will explore whether mean-variance portfolio selection (MV) and expected utility of terminal wealth maximization maxim (EU) make compatible portfolio selection decisions in the presence of a dominating asset. A three asset, three state model is presented to highlight the inconsistency between MV and EU when a dominated asset is present. (Library-derived description)
Description
Version of Record
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Working Paper