Proceedings | Finance area | Year 2015 | |
Ambiguity Aversion and Household Portfolio Choice: Empirical Evidenceby Stephen G. Dimmock; Roy Kouwenberg; Olivia S. Mitchell; Kim Peijnenburg | |
2015 Financial Management Assocation (FMA) European Conference, 19th Annual Meeting in
Venice, Italy 11-12 June 2015 |
AbstractWe test the relation between ambiguity aversion and five household portfolio choice puzzles: non-participation, low allocations to equity, home-bias, own-company stock ownership, and portfolio under-diversification. In a representative U.S. household survey, we measure ambiguity aversion using custom-designed questions based on Ellsberg urns. As theory predicts, ambiguity aversion is negatively associated with stock market participation, the fraction of financial assets in stocks, and foreign stock ownership, but positively related to own-company stock ownership. Conditional on stock ownership, ambiguity aversion is related to portfolio under-diversification, and during the financial crisis, ambiguity-averse respondents were more likely to sell stocks.
Keywords: ambiguity aversion, stock market participation, household portfolio puzzles, home bias, own-company stock puzzle, portfolio under-diversification, household finance |