We present a two-stage lottery model with generalized Wang transform as a probability weighting function to formally derive investors’ demand for the lottery-like security. Probability overweight on higher expected payoffs accounts for investors’ overvaluation of the security with moderately...

This study extends the multi-asset model of Huang et al. (2017), who examine only two types of investors, by adding a new investor type with partial information on the correlation coefficient and re-explores the limited participation phenomenon under correlation ambiguity. We investigate whether...