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Ambiguous Information, Portfolio Inertia, and Excess Volatility
Illeditsch, Philipp K. - 2011
I study the effects of risk and ambiguity (Knightian uncertainty) on optimal portfolios and equilibrium asset prices … ambiguity leads to portfolio inertia and excess volatility. Specifically, when news is surprising, then investors may not react …
Persistent link: https://www.econbiz.de/10013133587
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Does smooth ambiguity matter for asset pricing?
Gallant, A. Ronald; Jahan-Parvar, Mohammad R.; Liu, Hening - 2018
pricing models with smooth ambiguity. Statistical model comparison shows that models with ambiguity, learning and time … models featuring smooth ambiguity preferences. We rely on semi-nonparametric estimation of a flexible auxiliary model in our …
Persistent link: https://www.econbiz.de/10011780610
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Ambiguous Information, Risk Aversion, and Asset Pricing
Illeditsch, Philipp K. - 2011
I study the effects of aversion to risk and ambiguity (uncertainty in the sense of Knight (1921)) on the value of the … ambiguity can explain high expected stock market returns and excess volatility and kurtosis of stock market returns. Moreover …
Persistent link: https://www.econbiz.de/10013134524
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Quantile Hedging in a Semi-Static Market with Model Uncertainty
Bayraktar, Erhan - 2017
With model uncertainty characterized by a convex, possibly non-dominated set of probability measures, the investor minimizes the cost of hedging a path dependent contingent claim with given expected success ratio, in a discrete-time, semi-static market of stocks and options. Based on duality...
Persistent link: https://www.econbiz.de/10012972859
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Challenges of Indexation in S&P 500 Index Volatility Investment Strategies
Sundberg, Margaret - 2019
S&P 500 Index option-based volatility indexes have untenable risk-return profiles. These volatility indexes are not designed with consideration of important real-world risk characteristics of options and fail to represent volatility as a differentiated asset-class with relevance to the long-term...
Persistent link: https://www.econbiz.de/10012865881
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The geography of investor attention
Mengoli, Stefano; Pagano, Marco; Pattitoni, Pierpaolo - 2021
Retail investors pay over twice as much attention to local companies than non-local ones, based on Google searches. News volume and volatility amplify this attention gap. Attention appears causally related to perceived proximity: first, acquisition by a nonlocal company is associated with less...
Persistent link: https://www.econbiz.de/10012698207
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Steadfast, Greedy, or Fearful? Strategies for Responding to Extreme Market Volatility
White, James - 2020
March 2020 packed 2 ½ years of normal U.S. stock market volatility into one month, making it the most volatile month on record. Daily variability clocked in at 6%, six times higher than the average over the past 90 years. How should an investor respond to such volatility? In this article we...
Persistent link: https://www.econbiz.de/10012832242
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Trading, Ambiguity and Information in the Options Market
Ben-Rephael, Azi; Cookson, J. Anthony; Izhakian, Yehuda … - 2022
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 … that are hard-to-value. Greater ambiguity is also associated with a reduction in the informativeness of options trading for …
Persistent link: https://www.econbiz.de/10013403341
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Dynamic Asset Allocation Strategies Based on Unexpected Volatility
Zakamulin, Valeriy - 2019
In this paper we document that at the aggregate stock market level the unexpected volatility is negatively related to expected future returns and positively related to future volatility. We demonstrate how the predictive ability of unexpected volatility can be utilized in dynamic asset...
Persistent link: https://www.econbiz.de/10012905132
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Downside Volatility-Managed Portfolios
Qiao, Xiao - 2020
Downside volatility and volatility typically comove but are not highly correlated during the most volatile times. We show that portfolios scaled by downside volatility expand the ex post mean-variance frontiers constructed using the original portfolios and volatility-managed portfolios of...
Persistent link: https://www.econbiz.de/10012851535