Abstract

http://ssrn.com/abstract=2100680
 
 

References (27)



 
 

Footnotes (14)



 


 



Uncertainty Aversion and Portfolio Inertia


Takao Asano


Okayama University - Economics; Osaka University - Institute of Social and Economic Research (ISER)

July 2012

Bulletin of Economic Research, Vol. 64, Issue 3, pp. 334-343, 2012

Abstract:     
In stock markets, we often observe portfolio inertia, i.e., a situation in which some stocks are not traded or not priced for a few minutes or longer. This is neither an exceptional situation in which some stock price soars too high to be priced, nor the one where some stock price plummets too much to be traded. By introducing the concept of ‘Knightian uncertainty’, Dow and Werlang (1992) account for the existence of portfolio inertia, which has not been accounted for under the concept of ‘risk’. This paper provides a characterization of the spread between buying and selling prices based on a parameter proposed by Ozaki and Streufert (1999, 2001) that enables us to estimate the attitude towards Knightian uncertainty, and shows that an increase (a decrease) in Knightian uncertainty expands (shrinks) the interval in which an investor never changes her initial position. Furthermore, we analyse the effect of an increase in Knightian uncertainty on portfolio inertia based on Epsilon‐contaminations.

Number of Pages in PDF File: 10

Keywords: epsilon‐contaminations, portfolio inertia, uncertainty

JEL Classification: D81, G11

Accepted Paper Series


Date posted: July 5, 2012  

Suggested Citation

Asano, Takao, Uncertainty Aversion and Portfolio Inertia (July 2012). Bulletin of Economic Research, Vol. 64, Issue 3, pp. 334-343, 2012. Available at SSRN: http://ssrn.com/abstract=2100680 or http://dx.doi.org/10.1111/j.1467-8586.2010.00366.x

Contact Information

Takao Asano (Contact Author)
Okayama University - Economics ( email )
Tsushima-naka 3-1-1
Okayama, Okayama 7008530
Japan
Osaka University - Institute of Social and Economic Research (ISER) ( email )
6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan
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References:  27
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