We study how firm ambiguity---Knightian uncertainty---affects investor trading behavior using the options market as a laboratory. Greater ambiguity in the underlying asset negatively relates to both options open interest and options trading volume. The reduction in options trading activity is...

Seasoned equity offerings (SEOs) typically provide investors with information, or signals, that are stock price relevant. This information, however, is generally intangible, meaning market participants have incomplete knowledge about its quality. Investors thus tend to regard it as ambiguous. To...

Traditional thinking about investment has been thrown on its head in the wake of the financial crisis. Many investors no longer accept the idea that diversification reduces risk and the stock market provides the best long-term returns. With global markets increasingly interlinked, markets tend...