Working Paper: NBER ID: w18743
Authors: Stephen G. Dimmock; Roy Kouwenberg; Olivia S. Mitchell; Kim Peijnenburg
Abstract: We test the relation between ambiguity aversion and five household portfolio choice puzzles: non- participation, low allocations to equity, home-bias, own-company stock ownership, and portfolio under- diversification. In a representative U.S. household survey, we measure ambiguity aversion using custom- designed questions based on Ellsberg urns. As theory predicts, ambiguity aversion is negatively associated with stock market participation, the fraction of financial assets in stocks, and foreign stock ownership, but positively related to own-company stock ownership. Conditional on stock ownership, ambiguity aversion is related to portfolio under-diversification, and during the financial crisis, ambiguity-averse respondents were more likely to sell stocks.
Keywords: ambiguity aversion; household portfolio choice; stock market participation; financial decision-making
JEL Codes: C83; D14; D81; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ambiguity aversion (D81) | stock market participation (G10) |
| ambiguity aversion (D81) | fraction of financial assets allocated to stocks (G11) |
| ambiguity aversion (D81) | own-company stock ownership (G32) |
| ambiguity aversion (D81) | selling stocks during financial crisis (G01) |