Recently much progress has been made in developing optimal portfolio choice models accomodating time-varying opportunity sets, but unless investors are unreasonably risk averse, optimal holdings include unreasonably large equity positions. One reason is that most studies assume investors behave...

We study the effects of correlation ambiguity on portfolio choice in a market with multiple risky assets. We find that the optimal portfolio contains only a fraction of risky assets under correlation ambiguity, and in particular, just one risky asset enters the optimal portfolio if the level of...