Ambiguity and asset pricing: An empirical investigation for an emerging market

Baki Cem Şahin and Seza Danışoğlu

International Review of Financial Analysis, 2022, vol. 84, issue C

Abstract: This study explores the impact of ambiguity on returns of both individual stocks and stock portfolios in an emerging market setting. First, an ambiguity index is derived and then the sensitivity of stock returns to ambiguity is analyzed while controlling for the other risk factors commonly cited in the literature. Results show that stocks with a high (low) sensitivity to ambiguity generate higher (lower) excess returns. These results are intuitive in the sense that investors seem to ask for lower returns from those stocks that serve as a natural hedge against ambiguity. Our findings are also in line with the earlier studies that provide similar evidence from the US stock markets.

Keywords: Ambiguity; Asset pricing; Ambiguity index (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:84:y:2022:i:c:s1057521922002885

DOI: 10.1016/j.irfa.2022.102338

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