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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31453
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| Title: | Asset Pricing and Ambiguity: Empirical Evidence |
| Authors: | Brenner, Menachem
Izhakian, Yehuda |
| Keywords: | Ambiguity
Knightian uncertainty
Equity premium
Ambiguity measure |
| Issue Date: | 30-Jan-2012 |
| Abstract: | Modern portfolio theory focuses on the relationship between risk and
return, assuming away ambiguity, uncertainty over the probability space.
This paper assumes that ambiguity affects asset prices and tests the
relationship between risk, ambiguity and return based on a model
developed by Izhakian (2011). Its contribution is twofold; it proposes
an ambiguity measure that is derived theoretically and computed from
stock market prices. Second, it uses ambiguity in conjunction with risk
to test the basic relationship between risk, ambiguity and return. This
paper finds that ambiguity has a consistently negative effect on returns
and risk mostly has a positive effect. |
| URI: | http://hdl.handle.net/2451/31453 |
| Appears in Collections: | Economics Working Papers
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