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

By Massimo Guidolin, F. Rinaldi. Theory and Decision, 2010

180 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/f0aabdae3d4283d734291999e75169f0b3c86e5c

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1. Peter P. Wakker
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Citations in the corpus

• Measuring Ambiguity Attitudes for All (Natural) Events (2018, background): “Since then many models have been proposed, not only to accommodate Ellsberg’s paradox but also to explain anomalies in practice (Easley & O’Hara 2009; Guidolin & Rinaldi 2013).”
• Uncertainty Shocks, Asset Supply and Pricing over the Business Cycle (2018, unknown): “It has since been used in a number of studies in finance and macroeconomics (see Epstein and Schneider (2010) or Guidolin and Rinaldi (2013) for surveys).”