Can ambiguity aversion solve the equity premium puzzle? Survey evidence from international data
AbstractAmbiguity aversion has been suggested as a potential explanation for the equity premium puzzle in recent theoretical models. To test this hypothesis, we measure the amount of ambiguity aversion in a large-scale international survey. A comparison to the average equity premia in these countries demonstrates that ambiguity aversion does, indeed, have a significant influence on the amount of equity risk premium, even when controlling for macroeconomic parameters. Finally, we connect differences in ambiguity aversion to differences in uncertainty avoidance, one of Hofstede’s cultural dimensions.
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Bibliographic InfoArticle provided by Elsevier in its journal Finance Research Letters.
Volume (Year): 9 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/frl
Equity risk premium; Ambiguity aversion; Uncertainty avoidance; Cultural finance;
Find related papers by JEL classification:
- G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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