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Optimal frequency of portfolio evaluation in a choice experiment with ambiguity and loss aversion

Charles Bellemare, Sabine Kröger and Kouamé Marius Sossou

Journal of Econometrics, 2022, vol. 231, issue 1, 248-264

Abstract: We estimate a structural model using data from a novel experiment investigating how investors’ preferred frequency of portfolio evaluations balance the opposing effects of ambiguity and loss aversion. Investors in the experiment face initial ambiguity concerning return distributions for an asset. They observe draws from the true return distribution of the asset, allowing them to reduce their ambiguity through time. We exploit portfolio choices and stated beliefs over possible return distributions to estimate preferences and ambiguity updating rules. We find that 70% of investors would opt for a high frequency of portfolio evaluations, reflecting the dominating effect of ambiguity aversion over loss aversion.

Keywords: Portfolio choice; Feedback frequency; Narrow bracketing; Ambiguity aversion; Loss aversion; Decision theory (search for similar items in EconPapers)
JEL-codes: C25 C91 D81 G11 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jeconom.2020.11.003

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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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