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Portfolio selection with two-stage preferences

  • Taboga, Marco

We propose a model of portfolio selection under ambiguity, based on a two-stage valuation procedure which disentangles ambiguity and ambiguity aversion. The model does not imply 'extreme pessimism' from the part of the investor, as multiple priors models do. Furthermore, its analytical tractability allows to study complex problems thus far not analyzed, such as joint uncertainty about means and variances of returns.

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Article provided by Elsevier in its journal Finance Research Letters.

Volume (Year): 2 (2005)
Issue (Month): 3 (September)
Pages: 152-164

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Handle: RePEc:eee:finlet:v:2:y:2005:i:3:p:152-164
Contact details of provider: Web page: http://www.elsevier.com/locate/frl

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  1. Raman Uppal & Tan Wang, 2003. "Model Misspecification and Underdiversification," Journal of Finance, American Finance Association, vol. 58(6), pages 2465-2486, December.
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  17. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
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