RT Journal Article
SR Electronic
T1 Risk Aversion, Noise, and Optimal Investments
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 51
OP 59
DO 10.3905/jpm.2017.43.3.051
VO 43
IS 3
A1 Hjördis Hardardottir
A1 Frederik Lundtofte
YR 2017
UL https://pm-research.com/content/43/3/51.abstract
AB In contrast to the efficient market hypothesis (EMH), the noisy market hypothesis (NMH) asserts that prices are but noisy indications of fundamental values. The authors study losses in certainty equivalents of investing according to one hypothesis (NMH or EMH) when the other is true. Their findings suggest that, for reasonable parameter values, investing according to the EMH when the NMH is true yields lower losses than investing according to the NMH when the EMH is true. Further, investing according to the right hypothesis is much more important for risk-tolerant investors than for risk-averse investors.TOPIC: Portfolio theory