A Note on Asset Proportions, Stochastic Dominance, and the 50% Rule
Management Science · 1999 · Volume 45 · Issue 12
Abstract
In this note we analyze the composition of an optimal portfolio by considering the cumulative conditional expected outcome of two dependent assets. We develop a conditional stochastic dominance relation and show that for any concave von Neumann-Morgenstern utility function, the proportion of wealth invested in the dominant asset will be greater than 50%.
Keywords
stochastic dominance, conditional density function, optimal proportion, risk aversion, demand problem
Enable JavaScript for citation tools and additional paper interactions.