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Measuring Ambiguity Aversion

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  • Gallant, A. Ronald

    () (Pennsylvania State University)

  • Jahan-Parvar, Mohammad

    () (Board of Governors of the Federal Reserve System (U.S.))

  • Liu, Hening

    () (University of Manchester)

Abstract

We confront the generalized recursive smooth ambiguity aversion preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) with data using Bayesian methods introduced by Gallant and McCulloch (2009) to close two existing gaps in the literature. First, we use macroeconomic and financial data to estimate the size of ambiguity aversion as well as other structural parameters in a representative-agent consumption-based asset pricing model. Second, we use estimated structural parameters to investigate asset pricing implications of ambiguity aversion. Our structural parameter estimates are comparable with those from existing calibration studies, demonstrate sensitivity to sampling frequencies, and suggest ample scope for ambiguity aversion.

Suggested Citation

  • Gallant, A. Ronald & Jahan-Parvar, Mohammad & Liu, Hening, 2015. "Measuring Ambiguity Aversion," Finance and Economics Discussion Series 2015-105, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2015-105
    DOI: 10.17016/FEDS.2015.105
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    References listed on IDEAS

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    Cited by:

    1. Fabrice Collard & Sujoy Mukerji & Kevin Sheppard & Jean‐Marc Tallon, 2018. "Ambiguity and the historical equity premium," Quantitative Economics, Econometric Society, vol. 9(2), pages 945-993, July.
    2. Katsutoshi Wakai, "undated". "A Factor Pricing Model under Ambiguity," Discussion papers e-17-012, Graduate School of Economics , Kyoto University.
    3. repec:hal:journl:halshs-00594096 is not listed on IDEAS

    More about this item

    Keywords

    Ambiguity aversion; Bayesian estimation; Equity premium puzzle; Markov switching;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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