Written on 30 October 2019.
EDHEC Professor Kim Peijnenburg’s paper entitled “Ambiguity aversion and household portfolio choice puzzles: Empirical evidence » co-authored with Stephen Dimmock, Roy Kouwenberg and Olivia Mitchell is in the top 50 most cited papers published in the Journal of Financial Economics since 2016.
In this paper, the authors test the relation between ambiguity aversion and five household portfolio choice puzzles: nonparticipation in equities, low allocations to equity, home-bias, own-company stock ownership, and portfolio under-diversification. In a representative US household survey, they measure ambiguity preferences 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 it is 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.
The link to access the paper is available here.