TY - JOUR
T1 - Portfolio allocation problems between risky and ambiguous assets
AU - Asano, Takao
AU - Osaki, Yusuke
N1 - Funding Information:
We acknowledge an anonymous reviewer whose comments improved this paper substantially. We are grateful to Masamitsu Ohnishi and participants at Paris Financial Management Conference 2017 and the 2017 Annual Meeting of the Nippon Finance Association. Needless to say, we are responsible for any remaining errors. This research is financially supported by the JSPS KAKENHI Grant Nos. 26380240, 26380411, 26705004, 16H02026, 16H03619, 16K03558, 17K03806, and the Joint Research Program of KIER.
Publisher Copyright:
© 2019, Springer Science+Business Media, LLC, part of Springer Nature.
PY - 2020/1/1
Y1 - 2020/1/1
N2 - This paper considers a portfolio allocation problem between a risky asset and an ambiguous asset, and investigates how greater ambiguity aversion influences the optimal proportion invested in the two assets. We derive several sufficient conditions under which greater ambiguity aversion decreases the optimal proportion invested in the ambiguous asset. Furthermore, we consider an international diversification problem as an application and show that ambiguity aversion partially resolves the home bias puzzle.
AB - This paper considers a portfolio allocation problem between a risky asset and an ambiguous asset, and investigates how greater ambiguity aversion influences the optimal proportion invested in the two assets. We derive several sufficient conditions under which greater ambiguity aversion decreases the optimal proportion invested in the ambiguous asset. Furthermore, we consider an international diversification problem as an application and show that ambiguity aversion partially resolves the home bias puzzle.
KW - Greater ambiguity aversion
KW - Home bias puzzle
KW - Portfolio allocation problem
KW - Smooth ambiguity model
KW - Uncertainty modelling
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U2 - 10.1007/s10479-019-03206-1
DO - 10.1007/s10479-019-03206-1
M3 - Article
AN - SCOPUS:85064462408
SN - 0254-5330
VL - 284
SP - 63
EP - 79
JO - Annals of Operations Research
JF - Annals of Operations Research
IS - 1
ER -