IDEAS home Printed from https://ideas.repec.org/p/bcr/wpaper/201567.html
   My bibliography  Save this paper

Ambiguity and portfolio decisions

Author

Listed:
  • Eduardo Corso

    (Central Bank of Argentina)

Abstract

We study the household portfolio allocation in an economy with a history of nominal and macro volatility. First, applying smooth ambiguity preferences to a static portfolio choice problem, we rationalize two facts about the Argentine experience of the last 20 years: the dollarization of household financial assets and its bias towards investment real estate as a means of preserving the real value of wealth. We find that ambiguity explains portfolio dollarization. In addition, ambiguity aversion reduces the demand for assets denominated in US dollars and increases the demand for investment real estate. Second, applying recursive smooth ambiguity preferences to a consumption-based model, we find that ambiguity and ambiguity aversion may be relevant factors behind the equilibrium returns of low relative risk assets in Argentina. In addition, ambiguity and ambiguity aversion may be relevant factors explaining equity premiums.

Suggested Citation

  • Eduardo Corso, 2015. "Ambiguity and portfolio decisions," BCRA Working Paper Series 201567, Central Bank of Argentina, Economic Research Department.
    • Handle: RePEc:bcr:wpaper:201567
    as

    Download full text from publisher

    File URL: http://www.bcra.gov.ar/Pdfs/Investigaciones/WP_67_2015e.pdf
    File Function: Versión en Español
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ambiguity; ambiguity aversion; dollarization; real state investment; reserve value;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcr:wpaper:201567. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Federico Grillo (email available below). General contact details of provider: https://edirc.repec.org/data/bcraaar.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.