If an investor exhibits increasing ARA, does that not mean that as wealth increases the investor becomes more risk averse and therefore invests smaller absolute amounts in risky assets? Or, does the increasing here refer to increased amounts invested in risky assets rather than becoming increasingly risk aversion?? (Q1.30 i think in the part1)
Yes ... ... If an investor exhibits increasing ARA, this means that as wealth increases the investor becomes more risk-averse and therefore invests smaller absolute amounts in risky assets. Likewise, increasing RRA means that as wealth increases the investor becomes more risk-averse and therefore invests a smaller proportion in risky assets. I can't see a Question 1.30 in the Q&A Bank!
Thanks! I have an older version of the notes ...one that I used when I took the exam so maybe the number's wrong!! But thanks for clarifying...
