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Trading ambiguity: a tale of two heterogeneities

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  • Sujoy Mukerji

    (Department of Economics and University College - University of Oxford)

  • Han N Ozsoylev
  • Jean-Marc Tallon

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

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:

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  • Sujoy Mukerji & Han N Ozsoylev & Jean-Marc Tallon, 2018. "Trading ambiguity: a tale of two heterogeneities," Working Papers halshs-01935319, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01935319
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01935319
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