Advanced Asset Pricing Theory

Potential Functions and the Characterization of Economics-Based Information

“…Typically, the utility function's degree of concavity (or convexity) is an indicator of risk aversion (or risk preference). Ma [28] is an excellent source for more background on the use of utility functions in an asset pricing context. However, it needs explicit stressing, that in comparison with the utility function, the real potential function is embedded in a much richer, and usable, structure.…”

“…Such dependence is often modelled in a …nancial asset pricing context with the help of so called utility (or also preference) functions. See for instance, Ma [28]. Clearly, in (25) we have thus embedded attitudes towards risk.…”

W-MPS Risk Aversion and the Shadow CAPM: Theory and Empirical Evidence

“…Ma (2011a) meanwhile extends Epstein and Zin (1991) in a different direction than Yogo (2006). Rather than introducing durable consumption, he relaxes the assumption on the functional form of the certainty equivalent (CE).…”

“…Rather than introducing durable consumption, he relaxes the assumption on the functional form of the certainty equivalent (CE). Ma (2011a) merely introduces the following qualitative behavioral axiom, called weak form mean-preserving spread (w-MPS) risk aversion. Namely, is preferred to , if is a mean-preserving spread (MPS) of in the sense of = + , ( ) = 0 and E[ ] = 0.…”

“…Therefore, they are not subject to criticisms such as the well-known Allais Paradox and other deficiencies associated with expected utility functions. The expected utility certainty equivalent as assumed in Epstein and Zin (1991) is a special case of Ma's (2011a) formulation.…”