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Two-fund separation and positive marginal utility

[working paper]

Breuer, Wolfgang; Gürtler, Marc

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Further Details
Corporate Editor Technische Universität Braunschweig, Department Wirtschaftswissenschaften, Institut für Finanzwirtschaft
Abstract "The requirement of positive marginal utility only makes it possible to derive a restricted twofund separation theorem for portfolio selection problems replacing the original separation theorem of Cass and Stiglitz (1970). We use our findings for a re-examination of the bias-in-beta problem in mutual funds performance evaluation and of the relevance of the standard CAPM without borrowing restrictions. We also present empirical evidence for the only limited validity of the separation theorem when explicitly recognizing positive marginal utility. Moreover, quadratic utility functions are not apt to approximate the admissible range of risk preferences in the case of higher-order utility functions." (author's abstract)
Keywords capital; price; costs; utility; research; empirical research; performance assessment; investment; portfolio management
Classification Economic Policy
Document language English
Publication Year 2004
City Braunschweig
Page/Pages 36 p.
Series IF Working Paper Series, FW11V3
Licence Deposit Licence - No Redistribution, No Modifications
data provider This metadata entry was indexed by the Special Subject Collection Social Sciences, USB Cologne