PRACTICAL INVESTMENT CHOICE WITHOUT MEAN-VARIANCE

Authors

  • Stephen SATCHELL fellow Trinity College Cambridge
  • Jarrod WILCOX Wilcox Investment, Inc.

DOI:

https://doi.org/10.54695/bmi.168.28

Keywords:

Expected Utility, Generalized Logarithmic Utility, Mean-Variance, Surplus Growth

Abstract

This paper reviews our previous published work and stresses its relevance for practitioners. We argue that modelling investment choice via utility functions is a very useful exercise but the standard approach for doing this, namely mean variance analysis, has a number of weaknesses. We offer an alternative, the generalized logarithmic utility function advocated by Rubinstein. This specification is much better suited to wealth management and to retail investment and issues of complexity and computation can be easily resolved. We discuss applications that reveal better results than the standard approach.
JEL Classification: G00, G10, G11.

Published

2022-02-28

How to Cite

Stephen SATCHELL, & Jarrod WILCOX. (2022). PRACTICAL INVESTMENT CHOICE WITHOUT MEAN-VARIANCE. Bankers, Markets & Investors, 168(1), 28. https://doi.org/10.54695/bmi.168.28

Issue

Vol. 168 No. 1 (2022): BMI

Section

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