Articles

Ambiguity Aversion and Household Choice Puzzles: Empirical Evidence

S. G. DIMMOCK, R. KOUWENBERG, O. S. MITCHELL, K. PEIJNENBURG

Journal of Financial Economics

March 2016, vol. 119, pp.559-577

Departments: Finance

Keywords: Ambiguity aversion; Stock market participation; Household portfolio puzzles; Home-bias; Own-company stock puzzle; Portfolio under-diversification; Household finance; Financial literacy

http://www.sciencedirect.com/science/article/pii/S0304405X16000040?via%3Dihub


We test the relation between ambiguity aversion and five household portfolio choice puz- zles: nonparticipation in equities, low allocations to equity, home-bias, own-company stock ownership, and portfolio under-diversification. In a representative US household survey, we measure ambiguity preferences using custom-designed questions based on Ellsberg urns. As theory predicts, ambiguity aversion is negatively associated with stock market partic- ipation, the fraction of financial assets in stocks, and foreign stock ownership, but it is positively related to own-company stock ownership. Conditional on stock ownership, am- biguity aversion is related to portfolio under-diversification, and during the financial crisis, ambiguity-averse respondents were more likely to sell stocks


JavaScriptSettings