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Portfolio Adjustments: An Application to Rural Banking
Author(s) -
Robison Lindon J.,
Barry Peter J.
Publication year - 1977
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1240021
Subject(s) - portfolio , risk aversion (psychology) , portfolio optimization , econometrics , economics , consistency (knowledge bases) , market liquidity , variance (accounting) , decision maker , actuarial science , quadratic equation , set (abstract data type) , quadratic programming , expected utility hypothesis , computer science , mathematics , financial economics , mathematical optimization , monetary economics , geometry , accounting , management science , programming language , artificial intelligence
A general method is provided for evaluating how an expected‐utility‐maximizing choice is changed in response to factors shifting the mean‐variance (EV) efficient set and changes in the decision maker's level of risk aversion. Substitution and income effects under uncertainty are defined, related to those existing under certainty, and analyzed graphically and in a quadratic programming model of a rural bank. The bank application includes risk and liquidity components and indicates that the magnitude of the portfolio response may not be trivial. Evidence is also provided indicating the consistency between bank behavior and the EV decision criterion.