We introduce the ambiguity towards risk, defined as the variance of signals, as a source of investors’ uncertainty to supplement risk. When public signals arrive, all traders are informed, but they react diversely. We propose a piecewise optimal demand schedule for ambiguity-averse investors,...

The transaction-level analysis of security price changes by Madhavan, Richardson, and Roomans (1997, hereafter MRR) is a useful framework for financial analysis. The first-order Markov property of trading indicator variables is a critical assumption in the MRR model, which contradicts the...