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Portfolio Inertia and Contaminations

Takao Asano

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

June 2004

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, G11

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Date posted: July 9, 2004  

Suggested Citation

Asano, Takao, Portfolio Inertia and Contaminations (June 2004). ISER Discussion Paper No. 610. Available at SSRN: https://ssrn.com/abstract=562621 or http://dx.doi.org/10.2139/ssrn.562621

Contact Information

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