Ambiguity Aversion and Household Portfolio Choice: Empirical Evidence

59 Pages Posted: 26 Jan 2013 Last revised: 20 Mar 2022

See all articles by Stephen G. Dimmock

Stephen G. Dimmock

National University of Singapore; Asian Bureau of Finance and Economic Research (ABFER)

Roy Kouwenberg

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Mahidol University - College of Management; Erasmus University Rotterdam (EUR)

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

Kim Peijnenburg

Netspar; Centre for Economic Policy Research (CEPR); EDHEC Business School - Department of Economics & Finance

Multiple version iconThere are 3 versions of this paper

Date Written: January 2013

Abstract

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

Suggested Citation

Dimmock, Stephen G. and Kouwenberg, Roy R. P. and Kouwenberg, Roy R. P. and Mitchell, Olivia S. and Peijnenburg, Kim, Ambiguity Aversion and Household Portfolio Choice: Empirical Evidence (January 2013). NBER Working Paper No. w18743, Available at SSRN: https://ssrn.com/abstract=2207277

Stephen G. Dimmock (Contact Author)

National University of Singapore ( email )

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Roy R. P. Kouwenberg

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

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Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

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University of Pennsylvania - The Wharton School, Pension Research Council ( email )

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Kim Peijnenburg

Netspar ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
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EDHEC Business School - Department of Economics & Finance ( email )

France

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