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Competence and ambiguity aversion of heterogeneous investors

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  • Lai, Christine W.
  • Lien, Donald
  • Tsai, Shih-Chuan

Abstract

A unique intraday dataset from Taiwan is employed to investigate the effects of ambiguity aversion on trading dynamics and portfolio choice considering different competencies across investors. We find investors reduce trading propensities when market-level uncertainty is high but the trading volume does not reduce to zero. Less-competent investors, more ambiguity averse to market uncertainty than to firm uncertainty, exhibit portfolio under-diversification. Domestic institutional investors are equally (less) ambiguity averse to high market (firm) uncertainty than foreign counterparts, showing the home bias. High dividend yields offer certification of a “floor” payoff and are preferred by retail investors.

Suggested Citation

  • Lai, Christine W. & Lien, Donald & Tsai, Shih-Chuan, 2025. "Competence and ambiguity aversion of heterogeneous investors," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x25000150
    DOI: 10.1016/j.pacfin.2025.102678
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    More about this item

    Keywords

    Competence; Ambiguity aversion; Heterogeneous investors; Portfolio choice; Trading propensity;
    All these keywords.

    JEL classification:

    • G4 - Financial Economics - - Behavioral Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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