Efficiency, risk aversion and portfolio insurance: An analysis of financial asset portfolios held by investors in the United Kingdom

Using data for the United Kingdom, we show that investors in six different wealth ranges hold mean-variance efficient portfolios of financial assets. This result permits us to estimate coefficients of relative risk aversion for investors in each wealth range. We find that these coefficients are much higher than most previous studies have found. This implies that investors (i) are unwilling to hold risky assets unless they are compensated with a sufficiently high risk premium and (ii) are willing to pay for portfolio insurance. The general non-availability of portfolio insurance in the United Kingdom appears to indicate a supply-side rather than a demand-side failure.