Portfolio Allocation Problems between Risky Ambiguous Assets

Takao Asano () and Yusuke Osaki ()
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Takao Asano: Okayama University
Yusuke Osaki: Waseda University

No 975, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper considers a portfolio allocation problem between a risky asset and an ambiguous asset, and investigates how greater ambiguity aversion influences the optimal proportion invested in the two assets. We derive several sufficient conditions under which greater ambiguity aversion decreases the optimal proportion invested in the ambiguous asset. Furthermore, we consider an international diversification problem as an application and show that ambiguity aversion partially resolves the home bias puzzle.

Keywords: Uncertainty Modelling; Home Bias Puzzle; Portfolio Allocation Problem; Smooth Ambiguity Model; Greater Ambiguity Aversion (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Pages: 30pages
Date: 2017-08
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (1)

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