Using average portfolio holdings for traditional and alternative asset classes of 119 institutional investors, we then calibrate our model to implicitly determine the ambiguity factors of different asset classes. We find that institutional investors are strongly ambiguity-averse, as documented by a Sharpe...
Institutional investorsWe construct a model to examine the time-varying ambiguity of investors. When ambiguity occurs concerning recent news, long (short) position investors who are averse to ambiguity reduce (increase) their holdings, resulting in price drops (rises). We empirically analyze how the...
This phenomenon is known in the economic literature as the “ambiguity aversion”, which is the tendency to favour the known over the unknown, including known risks over unknown risks (Ellsberg1961). Several studies documented that generally investors are ambiguity averse (Ahn et al.2014; Bossaerts...