Ambiguity aversion and household portfolio choice puzzles: Empirical evidence

Stephen Dimmock, Roy Kouwenberg, Olivia Mitchell and Kim Peijnenburg

Journal of Financial Economics, 2016, vol. 119, issue 3, 559-577

Abstract: We test the relation between ambiguity aversion and five household portfolio choice puzzles: nonparticipation in equities, low allocations to equity, home-bias, own-company stock ownership, and portfolio under-diversification. In a representative US household survey, we measure ambiguity preferences using custom-designed questions based on Ellsberg urns. As theory predicts, ambiguity aversion is negatively associated with stock market participation, the fraction of financial assets in stocks, and foreign stock ownership, but it is positively related to own-company stock ownership. Conditional on stock ownership, ambiguity aversion is related to portfolio under-diversification, and during the financial crisis, ambiguity-averse respondents were more likely to sell stocks.

Keywords: Ambiguity aversion; Stock market participation; Household portfolio puzzles; Home-bias; Own-company stock puzzle; Portfolio under-diversification; Household finance; Financial literacy (search for similar items in EconPapers)
JEL-codes: C83 D14 D81 G11 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (160)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:119:y:2016:i:3:p:559-577

DOI: 10.1016/j.jfineco.2016.01.003

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