Ambiguity in asset pricing and portfolio choice: a review of the literature

Massimo Guidolin and Francesca Rinaldi ()

Theory and Decision, 2013, vol. 74, issue 2, 183-217

Abstract: We survey the literature that has explored the implications of decision-making under ambiguity for financial market outcomes, such as portfolio choice and equilibrium asset prices. This ambiguity literature has led to a number of significant advances in our ability to rationalize empirical features of asset returns and portfolio decisions, such as the failure of the two-fund separation theorem in portfolio decisions, the modest exposure to risky securities observed for a majority of investors, the home equity preference in international portfolio diversification, the excess volatility of asset returns, the equity premium and the risk-free rate puzzles, and the occurrence of trading break-downs. Copyright Springer Science+Business Media New York 2013

Keywords: Ambiguity; Ambiguity-aversion; Participation; Liquidity; Asset pricing; G10; G18; D81 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (98)

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Related works:
Working Paper: Ambiguity in Asset Pricing and Portfolio Choice: A Review of the Literature (2011)
Working Paper: Ambiguity in asset pricing and portfolio choice: a review of the literature (2010)
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DOI: 10.1007/s11238-012-9343-2

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