The risks and returns associated with different choices of electricity generation technology cannot properly be considered in isolation. The paper considers their impact on an investing company, using Mean-Variance Portfolio (MVP) theory to identify optimal generation portfolios in liberalised electricity markets characterised by fuel, CO2, and electricity price risk. The paper demonstrates the...

I examine an investor’s portfolio allocation problem across multiple risky assets in the presence of return predictability when, in addition to the predictability evidence, the investor uses conditional asset pricing models to guide him in the portfolio selection decision. I also explore how the uncertainty associated with the model dynamics affects the investor’s optimal portfolio. To analyze ...

We consider a portfolio-choice problem with one risky and one safe asset, where the utility function exhibits decreasing absolute risk aversion (DARA). We show that the indirect utility function of the portfolio-choice problem need not exhibit DARA. However, if the (optimal) marginal propensity to invest is positive for both assets, which is true when the utility function exhibits nondecreasing...

This paper provides an intersection between portfolio choice theory and the elicitation of preferences under uncertainty. Theories of financial markets build on portfolio choice theory, which generally assumes that preferences are of a particularly simple kind, while research on preferences has revealed that people have more sophisticated preferences. This paper brings the two fields together b...

In this paper, we propose an explanation for biases in portfolio choice. We show that if individuals compete for local resources within their community, their utility depends on their own wealth as well as aggregate community wealth. This leads to an externality in portfolio choice. If investors are sufficiently risk averse, then individual investors will bias their portfolio choice in the dire...

Ideas from Modern Portfolio Theory (MPT) are suggested as a framework around which a statistics syllabus for accounting students can be built at undergraduate level. There are motivational benefits, and many opportunities for interesting project work involving use of real data. Perhaps the most compelling attraction, however, is that a core concern in MPT is the measurement of variability, the ...

Mean-variance criterion has long been the main stream approach in the optimal portfolio theory. The investors try to make a balance between the risk and return on their portfolio. In this paper, the deviation of the asset return from the investor’s expectation in the worst scenario is taken as the measure of risk for portfolio selection. One important advantage of this approach is that the inve...

I develop a model of life-cycle portfolio choice with non-tradeable idiosyncratic labor income where the agent has an option to invest in human capital, for example through education. The inability to borrow against her human capital depresses the agent’s demand for equity, as she is concerned about being liquidity constrained when it is optimal to invest. The model has many predictions that ar...

We provide a detailed portfolio analysis for a nancial market with an atomless continuum of assets. In the context of an exact arbitrage pricing theory (EAPT), we go beyond the characterization of the existence of important portfolios (normalized riskless, mean, cost, factor and mean-variance eÆcient portfolios) to furnish exact portfolio compositions in terms of explicit portfolio weights. Suc...

The monthly return distributions of many hedge fund indices exhibit highly unusual skewness and kurtosis properties as well as first-order serial correlation. This has important consequences for investors. We demonstrate that although hedge fund indices are highly attractive in mean-variance terms, this is much less the case when skewness, kurtosis and autocorrelation are taken into account. Sh...