Title

Estimating the demand for risky assets via the indirect expected utility function

Abstract

This article obtains demand functions for risky assets without making a priori assumptions about the form of the utility function. In a simple portfolio model, the envelope theorem is applied to the indirect expected utility function to derive estimating equations. Tests for the existence of constant absolute or constant relative risk aversion are also developed. Empirical estimation of the demand for financial assets held by U.S. households for the period 1946-1985 indicates that aggregate household behavior is consistent with the existence of constant relative risk aversion, with the coefficient of risk aversion having a value of approximately 1.3.

Department(s)

Economics

Document Type

Article

DOI

https://doi.org/10.1016/0167-6687(93)90928-i

Publication Date

1993

Journal Title

Journal of Risk and Uncertainty

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