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On Investor Preferences and Mutual Fund Separation
Working Papers
  • Philip Dybvig, Washington University in St. Louis
  • Fang Liu, Ph.D, Cornell University School of Hotel Administration
Publication Date
9-1-2014
Disciplines
Abstract
We extend Cass and Stiglitz’s analysis of preference-based mutual fund separation. We show that high degrees of fund separation can be constructed by adding inverse marginal utility functions exhibiting lower degrees of separation. However, this method does not allow us to find all utility functions satisfying fund separation. In general, we do not know how to write the primal utility functions in these models in closed form, but we can do so in the special case of SAHARA utility defined by Chen et al. and for a new class of GOBI preferences introduced here. We show that there is money separation (in which the riskless asset can be one of the funds) if and only if there is a fund (which may not be the riskless asset) with a constant allocation as wealth changes.
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Citation Information

Dybvig, P., & Liu, F. (2014). On investor preferences and mutual fund separation [Electronic version]. Retrieved [insert date], from Cornell University, School of Hospitality Administration site: http://scholarship.sha.cornell.edu/workingpapers/13