Ambiguity aversion and stock market participation: An empirical analysis

Constantinos Antoniou, Richard D. F. Harris, Ruogu Zhang

    Research output: Contribution to journalArticle (Academic Journal)peer-review

    34 Citations (Scopus)
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    Theoretical models of portfolio choice that incorporate ambiguity predict that investors’ propensity to invest in equities is reduced when ambiguity in the stock market increases. Although this hypothesis stems from the extant theoretical literature, there is no empirical work examining whether it is supported in the data. We test this hypothesis, measuring participation using equity fund flows and ambiguity with dispersion in analyst forecasts about aggregate returns. Our results confirm this hypothesis, as we show that, controlling for other factors that affect flows, increases in ambiguity are associated with outflows from equity funds. Moreover, using data from the Survey of Consumer Finances, we find that increases in ambiguity significantly reduce the likelihood that the average household invests in equities.
    Original languageEnglish
    Pages (from-to)57-70
    Number of pages14
    JournalJournal of Banking and Finance
    Early online date27 Apr 2015
    Publication statusPublished - 1 Sept 2015


    • stock market participation
    • ambiguity aversion
    • fund flows


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