Limit Orders under Knightian Uncertainty

Michael Greinecker () and Christoph Kuzmics
Additional contact information
Michael Greinecker: University of Graz, Austria

No 2019-03, Graz Economics Papers from University of Graz, Department of Economics

Abstract: Investors who maximize subjective expected utility will generally trade in an asset unless the market price exactly equals the expected return, but few people participate in the stock market. [Dow and da Costa Werlang, Econometrica 1992] show that an ambiguity averse decision maker might abstain from trading in an asset for a wide interval of prices and use this fact to explain the lack of participation in the stock market. We show that when markets operate via limit orders, all investment behavior will be observationally equivalent to maximizing subjective expected utility; ambiguity aversion has no additional explanatory power.

Keywords: Ambiguity; Knightian uncertainty; Dominance; Stock market participation; Limit orders (search for similar items in EconPapers)
JEL-codes: D81 D83 G11 G12 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-fmk, nep-mst and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://unipub.uni-graz.at/obvugrveroeff/download/ ... riginalFilename=true

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:grz:wpaper:2019-03

Ordering information: This working paper can be ordered from
https://repecgrz.uni-graz.at/RePEc/

Access Statistics for this paper

More papers in Graz Economics Papers from University of Graz, Department of Economics University of Graz, Universitaetsstr. 15/F4, 8010 Graz, Austria. Contact information at EDIRC.
Bibliographic data for series maintained by Stefan Borsky ().