Ambiguity aversion and stock market participation: An empirical analysis

Constantinos Antoniou, Richard Harris and Ruogu Zhang

Journal of Banking & Finance, 2015, vol. 58, issue C, 57-70

Abstract: Theoretical models of portfolio choice that incorporate ambiguity predict that investors’ propensity to invest in equities is reduced when ambiguity in the stock market increases. Although this hypothesis stems from the extant theoretical literature, there is no empirical work examining whether it is supported in the data. We test this hypothesis, measuring participation using equity fund flows and ambiguity with dispersion in analyst forecasts about aggregate returns. Our results confirm this hypothesis, as we show that, controlling for other factors that affect flows, increases in ambiguity are associated with outflows from equity funds. Moreover, using data from the Survey of Consumer Finances, we find that increases in ambiguity significantly reduce the likelihood that the average household invests in equities.

Keywords: Stock market participation; Ambiguity aversion; Fund flows (search for similar items in EconPapers)
JEL-codes: D14 D81 G11 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:58:y:2015:i:c:p:57-70

DOI: 10.1016/j.jbankfin.2015.04.009

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