Portfolio Inertia and Contaminations
Okayama University - Economics; Osaka University - Institute of Social and Economic Research (ISER)
ISER Discussion Paper No. 610
This paper analyzes investors' portfolio selection problems in a two-period dynamic model of Knightian uncertainty. We account for the existence of portfolio inertia in this two-period framework. Furthermore, by incorporating investors' updating behavior, we analyze how new observation in the first period will affect investors' behavior. By this analysis, we show that new observation in the first period will expand portfolio inertia in the second period compared with the case in which new observation has not been gained in the first period if the degree of Knightian uncertainty is sufficiently large.
Number of Pages in PDF File: 25
Keywords: ε-Contaminations, Knightian Uncertainty
JEL Classification: D81, G11working papers series
Date posted: July 9, 2004
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 0.656 seconds