Proportional Risk Of Wealth And Risk Aversion

Risk aversion theory is one important area of economics and financial risk theory. Financial crisis from 2006 to 2008 also shows the research is very important. But mainstream points in most research believe that economic behavior'risk attitude is neutral and investors will take more risk with the increasing of their wealth. Therefore, there needs further research and empirical examination.This paper follows with the main line of proportional risk of wealth(PRW) and explores investors'risk attitude.Then the research paper gives the hypothesis of maximum and minimum PRW and analysis investors'investment deciding mechanism and then examines the relationship between levels of wealth and risk attitude and the hypothesis of maximum and minimum risk of wealth on the base of realistic data. At last, some advices about how to improve the research of risk theory will be given and some guiding significances of this paper will be shown.The research firstly gives that security assets play a really important role in investors'investment decision, and then explains why proportional risk of wealth is so important in explaining the risk attitude of investors. This paper proposes a conjecture that every investor may have their maximum and minimum PRW.Marginal utility analysis method on the course of analyzing investors'risk of wealth deciding mechanism will be implied in this research.What's more, this paper modeling this course in forth part of this paper and it hypothesizes investors'information is imperfect and endogenous the viable of risk deviation.Through analyzing the 162 investigations, we find investors'risk attitude is similar though they have various levels of wealth and there are not significant differences among them. Moreover, some investors'proportional risk of wealth would increase while some would decrease with the increasing of their wealth and the variable is normal distribution which is not consistent with Arrow-Pratt DPAR Hypothesis.