Academic Commons


Risk Preference Smoothness and the APT

Herk, Leonard F.

Attitudes of risk aversion and diversification preference are closely linked to the degree of smoothness of the underlying preference relation over monetary risks, represented in terms of the first and second variations of the preference functional in the direction of incremental risks, evaluated at an initial portfolio. Under general maintained assumptions, "exact" and "approximate" versions of the Arbitrage Pricing Theory (APT) may be derived respectively from first and second-degree smoothness of risk preferences among investors in a competitive, finite asset market.



More About This Work

Academic Units
Department of Economics, Columbia University
Department of Economics Discussion Papers, 746
Published Here
March 2, 2011


August 1995

Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.