Risk aversion, noise, and optimal investments
(2017) In Journal of Portfolio Management 43(3). p.51-59- Abstract
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.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/5209ec08-9cf9-4f30-96cf-38e3d95e9a57
- author
- Hardardottir, Hjördis LU and Lundtofte, Frederik LU
- organization
- publishing date
- 2017-03-01
- type
- Contribution to journal
- publication status
- published
- subject
- in
- Journal of Portfolio Management
- volume
- 43
- issue
- 3
- pages
- 9 pages
- publisher
- Institutional Investor Journals Group
- external identifiers
-
- scopus:85018760749
- ISSN
- 0095-4918
- DOI
- 10.3905/jpm.2017.43.3.051
- language
- English
- LU publication?
- yes
- id
- 5209ec08-9cf9-4f30-96cf-38e3d95e9a57
- date added to LUP
- 2017-05-24 11:52:21
- date last changed
- 2022-03-09 03:19:55
@article{5209ec08-9cf9-4f30-96cf-38e3d95e9a57, abstract = {{<p>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.</p>}}, author = {{Hardardottir, Hjördis and Lundtofte, Frederik}}, issn = {{0095-4918}}, language = {{eng}}, month = {{03}}, number = {{3}}, pages = {{51--59}}, publisher = {{Institutional Investor Journals Group}}, series = {{Journal of Portfolio Management}}, title = {{Risk aversion, noise, and optimal investments}}, url = {{http://dx.doi.org/10.3905/jpm.2017.43.3.051}}, doi = {{10.3905/jpm.2017.43.3.051}}, volume = {{43}}, year = {{2017}}, }