Portfolio Inertia and Contaminations

25 Pages Posted: 9 Jul 2004

See all articles by Takao Asano

Takao Asano

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

Date Written: June 2004

Abstract

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.

Keywords: ε-Contaminations, Knightian Uncertainty

JEL Classification: D81, G11

Suggested Citation

Asano, Takao, Portfolio Inertia and Contaminations (June 2004). Available at SSRN: https://ssrn.com/abstract=562621 or http://dx.doi.org/10.2139/ssrn.562621

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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