|
Archive@NYU >
Stern School of Business >
Economics Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31586
|
| Title: | Does Ambiguity Diversification Pay? |
| Authors: | Izhakian, Yehuda |
| Keywords: | Ambiguity, Ambiguity Measure, Risk
Uncertainty, Knightian Uncertainty, Random Probabilities |
| Issue Date: | 24-Jul-2012 |
| Abstract: | With a focus on risk, classical portfolio theory assumes that
probabilities of future outcomes are known. In reality, however, there
is ambiguity in these probabilities. This paper studies the nature of
the relationship between risk and ambiguity and proves that in most
cases ambiguity cannot be diversified without increasing risk. This
insight implies that holding a fully diversified portfolio is not
necessarily optimal. It challenges the conventional wisdom which asserts
that investors should hold such a portfolio. |
| URI: | http://hdl.handle.net/2451/31586 |
| Appears in Collections: | Economics Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
