Title: Risk Tolerances for Quasi Syndicates and Publicly Held Firms
Authors: Peter Anselmo, New Mexico Tech  and James S. Dyer, University of Texas at Austin
Date: June 1999
Status: working paper

A financial assets market context is used to present an extension of Wilson’s (1968)  classic risk tolerance aggregation result.  We build upon work by Wilson and Lintner (1965, 1970), and define a quasi syndicate as a group of market investors who hold the shares of a risky asset.  If investor preferences are modeled using exponential utility functions and percent variance is the measure of risk, we show that Wilson’s aggregation result is extended to quasi syndicates when there is more than one portfolio in the financial market.  We use this result in the context of firms, and introduce the idea of a firm risk tolerance that is identical to the quasi-syndicate risk tolerance. This work is motivated by the goal of formally establishing a basis for a market-based risk attitude for a publicly held firm.  Examples are used to illustrate our points, and we compare our market-based analysis with observed and assessed risk tolerances for fifteen publicly traded energy firms.

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