Ambiguity and portfolio decisions
Eduardo Corso ()
No 201567, BCRA Working Paper Series from Central Bank of Argentina, Economic Research Department
We study the household portfolio allocation in an economy with a history of nominal and macro volatility. First, applying smooth ambiguity preferences to a static portfolio choice problem, we rationalize two facts about the Argentine experience of the last 20 years: the dollarization of household financial assets and its bias towards investment real estate as a means of preserving the real value of wealth. We find that ambiguity explains portfolio dollarization. In addition, ambiguity aversion reduces the demand for assets denominated in US dollars and increases the demand for investment real estate. Second, applying recursive smooth ambiguity preferences to a consumption-based model, we find that ambiguity and ambiguity aversion may be relevant factors behind the equilibrium returns of low relative risk assets in Argentina. In addition, ambiguity and ambiguity aversion may be relevant factors explaining equity premiums.
Keywords: ambiguity; ambiguity aversion; dollarization; real state investment; reserve value (search for similar items in EconPapers)
JEL-codes: D14 G10 G11 (search for similar items in EconPapers)
Pages: 52 pages
New Economics Papers: this item is included in nep-upt
References: Add references at CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://www.bcra.gov.ar/Pdfs/Investigaciones/WP_67_2015e.pdf Versión en Español (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bcr:wpaper:201567
Access Statistics for this paper
More papers in BCRA Working Paper Series from Central Bank of Argentina, Economic Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Federico Grillo ().