SFB 303 Discussion Paper No. A - 320
Author: Drees, Burkhard, und Bernhard Eckwert
Title: Is the Price of a Riskier Asset More Volatile?
Abstract: This paper studies the relationship between the risk of financial
instruments and the volatility of their equilibrium prices in a two-period
stochastic asset valuation model. It is shown that if individual preferences
exhibit risk substitutability then the riskier asset has a more volatile
price compared to the less risky asset. Agent's risk complementarity, on
the other hand, implies an inverse relationship between the relative
riskiness of assets and their price fluctuations. Assuming time separable
preferences severs the link between risk and price variability.
Creation-Date: September 1990
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