We relate time-varying aggregate ambiguity (V-VSTOXX) to individual investor trading. We use the trading records of more than 100,000 individual investors from a large German online brokerage from March 2010 to December 2015. We find that an increase in ambiguity is associated with increased...

We consider an investor who faces parameter uncertainty in a continuous-time financial market. We model the investor's preference by a power utility function leading to constant relative risk aversion. We show that the loss in expected utility is large when using a simple plug-in strategy for...

We examine asset allocation decisions under smooth ambiguity aversion when an investor has a prior degree of belief in an asset pricing model (e.g., the domestic CAPM). Different from a Bayesian approach, the investor separately relies on the conditional distribution of returns and on the...

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...

In this paper, we study the worst-case distortion risk measure when information about distortion functions is partially available. We obtain the explicit forms of the worst-case distortion functions from several different sets of plausible distortion functions. When there is no concavity...

In this paper, expected utility, defined by a Taylor series expansion around expected wealth, is maximized. The coefficient of relative risk aversion (CRRA) that is commensurate with a 100% investment in the risky asset is simulated. The following parameters are varied: the riskless return, the...

This paper focuses on asset allocation. We show how any shapes of risk aversion can be modeled to incorporate the mixed evidence suggested by the empirical studies about this important subjective variable (e.g., Holt and Laury, 2002; Meyer and Meyer, 2005; Guiso and Paiella, 2008). Our setting builds on...

Should you buy a stock or a corporate bond? A common belief is that the Pratt-Arrow risk aversion measure gives the answer: a more risk averse investor will prefer more a corporate bond to a stock. However, this is not always true. In a simple portfolio problem with a riskless bond, a stock and...

This paper demonstrates the simple incorporation of any shape of risk aversion into a pure asset allocation framework. Indeed, empirical studies show mixed evidence regarding the shape of this important but subjective variable (e.g., Holt and Laury, 2002; Meyer and Meyer, 2005; Guiso and Paiella, 2008)....