Measuring Ambiguity Aversion

A. Gallant, Mohammad Jahan-Parvar and Hening Liu

No 2015-105, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We confront the generalized recursive smooth ambiguity aversion preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) with data using Bayesian methods introduced by Gallant and McCulloch (2009) to close two existing gaps in the literature. First, we use macroeconomic and financial data to estimate the size of ambiguity aversion as well as other structural parameters in a representative-agent consumption-based asset pricing model. Second, we use estimated structural parameters to investigate asset pricing implications of ambiguity aversion. Our structural parameter estimates are comparable with those from existing calibration studies, demonstrate sensitivity to sampling frequencies, and suggest ample scope for ambiguity aversion.

Keywords: Ambiguity aversion; Bayesian estimation; Equity premium puzzle; Markov switching (search for similar items in EconPapers)
JEL-codes: C61 D81 G11 G12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2015-11-23
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-105

DOI: 10.17016/FEDS.2015.105

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