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Trading ambiguity: a tale of two heterogeneities

Author

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  • Sujoy Mukerji

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

  • Han Ozsoylev

    ()

  • Jean-Marc Tallon

    () (PSE - Paris School of Economics)

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:

Suggested Citation

  • Sujoy Mukerji & Han 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://halshs.archives-ouvertes.fr/halshs-01935319
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    1. Milo Bianchi & Jean-Marc Tallon, 2014. "Ambiguity Preferences and Portfolio Choices: Evidence from the Field," Documents de travail du Centre d'Economie de la Sorbonne 14065, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    2. Fabio Maccheroni & Massimo Marinacci & Doriana Ruffino, 2013. "Alpha as Ambiguity: Robust Mean‐Variance Portfolio Analysis," Econometrica, Econometric Society, vol. 81(3), pages 1075-1113, May.
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      • Mark Schneider & Jonathan Leland & Nathaniel T. Wilcox, 2016. "Ambiguity Framed," Working Papers 16-11, Chapman University, Economic Science Institute.
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