Ambiguity, Risk, and Asset Returns in Continuous Time
AbstractModels of utility in stochastic continuous-time settings typically assume that beliefs are represented by a probability measure, hence ruling out a priori any concern with ambiguity. This paper formulates a continuous-time intertemporal version of multiple-priors utility, where aversion to ambiguity is admissible. In a representative agent asset market setting, the model delivers restrictions on excess returns that admit interpretations reflecting a premium for risk and a separate premium for ambiguity. Copyright The Econometric Society 2002.
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Bibliographic InfoArticle provided by Econometric Society in its journal Econometrica.
Volume (Year): 70 (2002)
Issue (Month): 4 (July)
Other versions of this item:
- Zengjing Chen & Larry G. Epstein, 2000. "Ambiguity, risk and asset returns in continuous time," RCER Working Papers 474, University of Rochester - Center for Economic Research (RCER).
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- D9 - Microeconomics - - Intertemporal Choice
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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