Competence and ambiguity aversion of heterogeneous investors

Christine W. Lai, Donald Lien and Shih-Chuan Tsai

Pacific-Basin Finance Journal, 2025, vol. 90, issue C

Abstract: A unique intraday dataset from Taiwan is employed to investigate the effects of ambiguity aversion on trading dynamics and portfolio choice considering different competencies across investors. We find investors reduce trading propensities when market-level uncertainty is high but the trading volume does not reduce to zero. Less-competent investors, more ambiguity averse to market uncertainty than to firm uncertainty, exhibit portfolio under-diversification. Domestic institutional investors are equally (less) ambiguity averse to high market (firm) uncertainty than foreign counterparts, showing the home bias. High dividend yields offer certification of a “floor” payoff and are preferred by retail investors.

Keywords: Competence; Ambiguity aversion; Heterogeneous investors; Portfolio choice; Trading propensity (search for similar items in EconPapers)
JEL-codes: D81 G11 G15 G4 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x25000150

DOI: 10.1016/j.pacfin.2025.102678

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