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.
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Creation-Date: September 1990
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