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

Huang, James and Stapleton, Richard (2012) Should you buy a stock or a corporate bond? Another characterization of cautiousness. Working Paper. .

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Abstract

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.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: downside risk aversion ; cautiousness ; demand for corporate bonds ; demand for stocks
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 58959
Deposited By: ep_importer_pure
Deposited On: 08 Oct 2012 13:45
Refereed?: No
Published?: Published
Last Modified: 08 Oct 2012 16:25
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/58959

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