Distributional Analysis of Portfolio Choice

Abstract

Trading in a market is compared with receiving some particular consu mption bundle, given increasing state-independent preferences and complete markets. The analysis focuses on the distribution price of t he particular bundle. The distributional price is the price of the ch eapest utility-equivalent bundle sold in the market. The distribution al price is determined by the distribution functions of the outside b undle and the state price density. Simple portfolio performance measu res illustrate the value of the approach. Unlike CAPM-based measures, these measures are valid even when superior information is the sourc e of superior performance. Copyright 1988 by the University of Chicago.