Abstract

This paper tests the effects of ambiguity aversion on household portfolio choice. We measure ambiguity aversion with custom-designed questions based on Ellsberg urns, using a large representative survey of U.S. households. As theory predicts, ambiguity aversion is negatively associated with stock market participation and with the fraction of wealth allocated to stocks. Moreover, the effect is large: the participation rate is 3.9 percentage points lower among ambiguity averse respondents, compared to ambiguity neutral/seeking respondents. We also find that, conditional on prior stock ownership, ambiguity averse respondents were more likely to sell stocks during the financial crisis. Stephen G. Dimmock Division of Finance and Banking Nanyang Technological University Singapore, 639798 dimmock@ntu.edu.sg Roy Kouwenberg College of Management Mahidol University 69 Vipawadee Rangsit Rd Bangkok, 10400, Thailand and Erasmus University Rotterdam cmroy@mahidol.ac.th Olivia S. Mitchell University of Pennsylvania Wharton School 3620 Locust Walk, St 3000 SH-DH Philadelphia, PA 19104-6302 and NBER mitchelo@wharton.upenn.edu Kim Peijnenburg Bocconi University Via Roentgen 1 20135 Milan Italy kim.peijnenburg@unibocconi.it

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