Ambiguity aversion and stock market participation: an empirical analysis
Antoniou, Constantinos; Harris, Richard D. F.; Zhang, Ruogu
Date: 14 April 2015
Journal
Journal of Banking and Finance
Publisher
Elsevier
Publisher DOI
Abstract
Stock market participation is very low, with approximately two thirds of all U.S. households not owning any public equity. This is a puzzle in the context of the basic Expected Utility model. One explanation put forward in the literature is that stock market participation is low because, in addition to risk, stocks also entail ambiguity ...
Stock market participation is very low, with approximately two thirds of all U.S. households not owning any public equity. This is a puzzle in the context of the basic Expected Utility model. One explanation put forward in the literature is that stock market participation is low because, in addition to risk, stocks also entail ambiguity and investors are ambiguity averse. We empirically test this hypothesis, measuring stock market participation using equity fund flows and ambiguity with dispersion in analyst forecasts about aggregate market returns. In a multivariate framework our results show that increases in ambiguity are significantly and negatively related to equity fund flows, and thus support the notion that limited market participation is related to ambiguity aversion.
Finance and Accounting
Faculty of Environment, Science and Economy
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