Faculty Digital Archive

Archive@NYU >
Stern School of Business >
Economics Working Papers >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/31453

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

Files in This Item:

File Description SizeFormat
Izhakian-AssetPricingAmbiguity-Dec2011.pdfAsset Pricing and Ambiguity: Empirical Evidence163.64 kBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.

 

The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS