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Trading ambiguity: a tale of two heterogeneities

Sujoy Mukerji (), Han Ozsoylev () and Jean-Marc Tallon ()
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Jean-Marc Tallon: PSE - Paris School of Economics

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Abstract: We consider financial markets with heterogeneously ambiguous assets and heterogeneously ambiguity averse investors. Investors' preferences, a version of the smooth ambiguity model, are a parsimonious extension of the standard mean-variance framework. We consider, in turn, portfolio choice, equilibrium prices, and trade upon arrival of public information, and show, in each case, there are departures from the outcome in standard theory. These departures are of significance as they occur in the direction of empirical regularities that belie the standard theory. * We would like to thank the following for their helpful comments:

Date: 2018-11-26
New Economics Papers: this item is included in nep-upt
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