Asset pricing models assume that probabilities of future outcomes are known. In reality, however, there is ambiguity with regard to these probabilities. Accounting for ambiguity in asset pricing theory results in a model with two systematic components, beta risk and beta ambiguity. The focus of...

We introduce ambiguity in conjunction with risk to study the relation between risk, ambiguity, and expected returns. Distinguishing between ambiguity and attitudes toward ambiguity, we develop an empirical methodology for measuring the degree of ambiguity and for assessing attitudes toward...

Modern portfolio theory, developed in the expected utility paradigm, focuses on the relationship between risk and return, assuming away ambiguity, uncertainty over the probability space. In this paper, we assume that ambiguity affects asset prices and we test the relationship between risk,...