《Risk Aversion and Capital Allocation to Risky Assets》.docxVIP

Chapter6: Risk Aversion and Capital Allocation to Risky AssetsChapter OpenerPART??IIp. 160THE PROCESS OF??constructing an investor portfolio can be viewed as a sequence of two steps: (1) selecting the composition of ones portfolio of risky assets such as stocks and long-term bonds, and (2) deciding how much to invest in that risky portfolio versus in a safe asset such as short-term Treasury bills. Obviously, an investor cannot decide how to allocate investment funds between the risk-free asset and that risky portfolio without knowing its expected return and degree of risk, so a fundamental par