Ambiguity Preferences and Portfolio Choices: Evidence from the Field

Management Science, 2017

55 Pages Posted: 15 Nov 2019

See all articles by Milo Bianchi

Milo Bianchi

University of Toulouse 1 - Toulouse School of Economics (TSE)

Jean-Marc Tallon

Paris School of Economics

Date Written: November 7, 2017

Abstract

We match administrative panel data on portfolio choices with survey data on preferences over ambiguity. We show that ambiguity averse investors bear more risk, due to a lack of diversification. In particular, they exhibit a form of home bias that leads to higher exposure to the domestic relative to the international stock market. While more sensitive to market factors, their returns are on average higher, suggesting that ambiguity averse investors need not be driven out of the market for risky assets. We also show that these investors rebalance their portfolio more actively and in a contrarian direction relative to past market trends, which allows them to keep their risk exposure relatively constant over time. We discuss these findings in relation to the theoretical literature on portfolio choice under ambiguity.

Suggested Citation

Bianchi, Milo and Tallon, Jean-Marc, Ambiguity Preferences and Portfolio Choices: Evidence from the Field (November 7, 2017). Management Science, 2017, Available at SSRN: https://ssrn.com/abstract=3482340

Milo Bianchi (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Jean-Marc Tallon

Paris School of Economics ( email )

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