Measuring investment opportunities under uncertainty

Abstract

In order to make sound economic decisions it is important to measure the possibilities offered by a market in relation to investments. Provided an investment scheme S = (r; R1, . . . , Rn), where r is a lower bound on the desired investment return and the Ri’s are the asset yields, the power to invest measures the capability of the scheme to fulfill requirement r. The power to invest is inspired in the Coleman’s power of a collectivity to act. We exemplify this approach considering subsets of companies from stock indexes IBEX35 and DAX. We extend the power to invest to investment schemata with imprecise yields. We prove basic relations with the precise yields case and we also show that good monotonicity properties hold. Finally, we propose an analysis, through integrals of the power function, for the case of an unspecific desired return r.