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All Roads Lead to Risk Preference: A Turnpike Theorem for Conditionally Independent Returns

Publication ,  Journal Article
McCardle, KF; Winkler, RL
Published in: Journal of Financial and Quantitative Analysis
January 1, 1989

An individual is repeatedly offered the opportunity to invest in a risky asset whose return distribution is unknown. Because the return distribution is constant over time, however, he is able to learn about that distribution by observing investment outcomes. Results are presented regarding the asymptotically optimal investment behavior of a risk-averse individual under these circumstances when his aim is to maximize the expected utility of his end-of-horizon wealth. For the class of isoelastic utility functions with constant relative risk averson less than one, the optimal investment approaches a constant proportion of wealth. The limiting proportion is the same as the proportion put up by the most optimistic individual when the investment opportunity is offered only once. These results are then extended by generalizing the class of utility functions under consideration and, at the same time, restricting the class of possible investment schemes. This paper is distinguished from the previous literature by the assumption of conditional independence of returns across periods. © 1989, The Economic History Association. All rights reserved.

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Published In

Journal of Financial and Quantitative Analysis

DOI

EISSN

1756-6916

ISSN

0022-1090

Publication Date

January 1, 1989

Volume

24

Issue

1

Start / End Page

13 / 28

Related Subject Headings

  • Finance
  • 3502 Banking, finance and investment
  • 3501 Accounting, auditing and accountability
  • 1502 Banking, Finance and Investment
  • 1501 Accounting, Auditing and Accountability
 

Citation

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McCardle, K. F., & Winkler, R. L. (1989). All Roads Lead to Risk Preference: A Turnpike Theorem for Conditionally Independent Returns. Journal of Financial and Quantitative Analysis, 24(1), 13–28. https://doi.org/10.2307/2330745
McCardle, K. F., and R. L. Winkler. “All Roads Lead to Risk Preference: A Turnpike Theorem for Conditionally Independent Returns.” Journal of Financial and Quantitative Analysis 24, no. 1 (January 1, 1989): 13–28. https://doi.org/10.2307/2330745.
McCardle KF, Winkler RL. All Roads Lead to Risk Preference: A Turnpike Theorem for Conditionally Independent Returns. Journal of Financial and Quantitative Analysis. 1989 Jan 1;24(1):13–28.
McCardle, K. F., and R. L. Winkler. “All Roads Lead to Risk Preference: A Turnpike Theorem for Conditionally Independent Returns.” Journal of Financial and Quantitative Analysis, vol. 24, no. 1, Jan. 1989, pp. 13–28. Scopus, doi:10.2307/2330745.
McCardle KF, Winkler RL. All Roads Lead to Risk Preference: A Turnpike Theorem for Conditionally Independent Returns. Journal of Financial and Quantitative Analysis. 1989 Jan 1;24(1):13–28.
Journal cover image

Published In

Journal of Financial and Quantitative Analysis

DOI

EISSN

1756-6916

ISSN

0022-1090

Publication Date

January 1, 1989

Volume

24

Issue

1

Start / End Page

13 / 28

Related Subject Headings

  • Finance
  • 3502 Banking, finance and investment
  • 3501 Accounting, auditing and accountability
  • 1502 Banking, Finance and Investment
  • 1501 Accounting, Auditing and Accountability