Ambiguity Preferences and Portfolio Choices: Evidence from the Field

Abstract:

We investigate the empirical relation between ambiguity aversion and portfolio choices by matching administrative panel data on port-folio choices with survey data on preferences over ambiguity. We show that ambiguity averse investors bear more risk. Their portfolios exhibit higher idiosyncratic variance, and in particular they are more exposed to the domestic relative to the international stock market. Their returns are on average higher but more sensitive to market factors. Over time, ambiguity averse investors rebalance their portfolio more actively and in a contrarian direction relative to market trends. We discuss these findings in relation to the theoretical literature on portfolio choice under ambiguity.