The relationship between risk aversion and cautiousness

Huang, James (2012) The relationship between risk aversion and cautiousness. Working Paper. Lancaster University, Lancaster.

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In this paper we investigate the relationship between risk aversion and cautiousness, two important risk preference measures. We show how high cautiousness is associated with low risk aversion and how bounds and limits of cautiousness imply bounds and limits of relative risk aversion respectively. We also show how the monotonicity of cautiousness implies the monotonicity of risk aversion. Interestingly, we find that decreasing cautiousness implies standard risk aversion. We also reveal a close relationship between cautiousness and relative risk tolerance. These results help us better understand various conditions concerning risk aversion and cautiousness. They may also shed light on how investors' investment decisions in the equity and options markets are related.

Item Type:
Monograph (Working Paper)
Uncontrolled Keywords:
?? risk aversionrisk tolerancecautiousnessaccounting and financehf5601 accounting ??
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Deposited On:
08 Oct 2012 12:48
Last Modified:
15 Jul 2024 07:55