This paper studies the conjecture that investors prefer derivative markets over the equity market when hedging risks. An investor who wants to hedge, say inflation or crash risk, generally faces substantially more beta uncertainty in the stock market than in the derivatives market. We show that...

We experimentally study agents’ preferences for ambiguity resolution in dynamic environments. We theoretically demonstrate that the three most popular recursive models of ambiguity aversion make different predictions regarding agents’ preferences for the timing and graduality of ambiguity...