Measuring Ambiguity Aversion

47 Pages Posted: 10 Oct 2014 Last revised: 19 Dec 2017

See all articles by A. Ronald Gallant

A. Ronald Gallant

Duke University - Fuqua School of Business, Economics Group; New York University - Department of Economics

Mohammad R. Jahan-Parvar

Board of Governors of the Federal Reserve System

Hening Liu

University of Manchester - Alliance Manchester Business School

Date Written: October 30, 2015

Abstract

We confront the generalized recursive smooth ambiguity aversion preferences of Klibanoff, Marinacci, and Mukerji (2005, 2009) with data using Bayesian methods introduced by Gallant and McCulloch (2009) to close two existing gaps in the literature. First, we use macroeconomic and financial data to estimate the size of ambiguity aversion as well as other structural parameters in a representative-agent consumption-based asset pricing model. Second, we use estimated structural parameters to investigate asset pricing implications of ambiguity aversion. Our structural parameter estimates are comparable with those from existing calibration studies, demonstrate sensitivity to sampling frequencies, and suggest ample scope for ambiguity aversion.

Keywords: Ambiguity aversion, Bayesian estimation, Equity premium puzzle, Markov switching

JEL Classification: C61, D81, G11, G12

Suggested Citation

Gallant, A. Ronald and Jahan-Parvar, Mohammad R. and Liu, Hening, Measuring Ambiguity Aversion (October 30, 2015). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.2507306

A. Ronald Gallant

Duke University - Fuqua School of Business, Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

New York University - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Mohammad R. Jahan-Parvar (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://sites.google.com/site/mrjahan/

Hening Liu

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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