Econometrica: Nov 1982, Volume 50, Issue 6

Portfolio Efficient Sets<1525:PES>2.0.CO;2-L
p. 1525-1546

Philip H. Dybvig, Stephen A. Ross

In a portfolio problem with given asset returns, the portfolio efficient set is the set of portfolios chosen by any risk averse agent. Using an approach of Peleg and Yaari [13], we characterize the portfolio efficient set and derive some of its properties. In particular, we show that it may not be convex, proving that a central result of mean variance theory, the efficiency of the market portfolio, does not generalize. Finally, a characterization of the efficiency of several observations gives a version of revealed preference theory for incomplete markets.

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