TY - UNPB

T1 - Should you buy a stock or a corporate bond? Another characterization of cautiousness

AU - Huang, James

AU - Stapleton, Richard

PY - 2012

Y1 - 2012

N2 - Should you buy a stock or a corporate bond? A common belief is that the Pratt-Arrow risk aversion measure gives the answer: a more risk averse investor will prefer more a corporate bond to a stock. However, this is not always true. In a simple portfolio problem with a riskless bond, a stock and a corporate bond from a firm, we show that, it is not the risk aversion measure but a downside risk aversion measure called cautiousness which gives the answer to the question: a more cautious investor will prefer more a stock to a corporate bond. While in some cases downside risk aversion agrees with risk aversion, in some other cases it does not.

AB - Should you buy a stock or a corporate bond? A common belief is that the Pratt-Arrow risk aversion measure gives the answer: a more risk averse investor will prefer more a corporate bond to a stock. However, this is not always true. In a simple portfolio problem with a riskless bond, a stock and a corporate bond from a firm, we show that, it is not the risk aversion measure but a downside risk aversion measure called cautiousness which gives the answer to the question: a more cautious investor will prefer more a stock to a corporate bond. While in some cases downside risk aversion agrees with risk aversion, in some other cases it does not.

KW - downside risk aversion

KW - cautiousness

KW - demand for corporate bonds

KW - demand for stocks

M3 - Working paper

BT - Should you buy a stock or a corporate bond? Another characterization of cautiousness

ER -