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FACTORS INFLUENCING PORTFOLIO SELECTION: A SIMPLE MODEL *
Author(s) -
Roskamp Karl W.
Publication year - 1967
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.1967.tb00862.x
Subject(s) - portfolio , loanable funds , economics , econometrics , modern portfolio theory , mathematical economics , yield (engineering) , selection (genetic algorithm) , simple (philosophy) , actuarial science , financial economics , interest rate , monetary economics , computer science , thermodynamics , physics , philosophy , epistemology , artificial intelligence
SUMMARY In this paper an effort is made to pull together different strands of thinking on the subject of portfolio selection in recent literature. In order to make explicit relationships which are difficult to state verbally a simple model is set up which accounts for a number of factors influencing portfolio selection. The model is a certainty‐equivalence type model as developed by T obin and by M arkowitz. With its aide it is possible to indicate the general directions of shifts in portfolio composition if there are changes in the market rate of interest (effect stressed by the so‐called ‘New Theory of Credit Control’), a change in the yield differential between á low‐yield, low‐risk security and a high‐yield, high‐risk security (effect investigated by W arren L. S mith ), a change in risk aversion (effect investigated by D. E. F arrar and others) and a change in total loanable funds available (effect investigated by B. G. M alkiel and J. K ane ). In addition, the effect of a proportionate income tax with and without loss‐offset provisions on portfolio composition is shown.