 The impact of ambiguity-loving attitude on market participation and asset pricingYuzhe Sun, Yanjie Wang, Shunming Zhang and Helen Huang Economic Modelling, 2023, vol. 128, issue C Abstract: Ambiguity-averse attitudes are widely accepted to influence investors’ behavior; however, the impact of ambiguity-loving attitudes has yet to be thoroughly investigated. This paper examines the effect of the ambiguity-loving attitude on market participation and asset pricing. We propose a model incorporating investors with an ambiguity-loving attitude, determining that ambiguity-loving individuals have higher allocations in risky assets, crowding out other investors and extending their nonparticipation region. When the market supply is small, ambiguity-loving investors’ discontinuous and non-unique demand mapping can cause “flat ranges” in equilibrium prices. When the market supply is moderate or large, increasing the ambiguity level or ambiguity-loving investors’ fraction reduces equity premium. With short-sales constraints, the effect of ambiguity-loving investors’ attitudes remains unchanged except for their positions and the equity premium. With heterogeneous opinions, a rising ambiguity level or ambiguity-loving investors’ fraction increases equity premiums when they only hold short positions. Keywords: Ambiguity loving; Limited participation; Crowding-out effect; Asset pricing; General equilibrium (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:128:y:2023:i:c:s0264999323003395 DOI: 10.1016/j.econmod.2023.106527 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.