We identify the conditions where robust mean–variance preferences, which capture ambiguity aversion, are observationally nonequivalent to subjective mean–variance preferences. Conversely, we also provide an example showing that observational equivalence holds regardless of the degree of...

This paper shows that when Value-at-Risk constrained institutional investors care about their relative standings among the peer group, more risk averse investors would take more risk, which improves the risk sharing and lowers the volatility.

Estimates of agents’ risk aversion differ between market studies and experimental studies. We demonstrate that these estimates can be reconciled through consistent treatment of agents’ propensity for narrow framing.

The coskewness–cokurtosis pricing model is equivalent to absence of any positive-alpha return for which the residual risk has positive coskewness and negative cokurtosis with the market. This parallels the CAPM and also the fundamental theorem of asset pricing.

A restricted-perceptions equilibrium exists in which risk-averse agents believe stock prices follow a random walk with a conditional variance that is self-fulfilling. When agents estimate risk, bubbles and crashes arise. These effects are stronger when agents allow for ARCH in excess returns.

Two recent asset pricing models share a common core of the addition of profitability and investment as factors, but differ in implementation. We adapt these models for the UK and argue that the Fama–French five-factor profitability factor offers the most potential.

This paper analyzes gender differences in the disposition effect in an experiment based on Weber and Camerer (1998). The results emphasize that female investors realize less capital losses, have significantly higher disposition effects and are more loss averse than men.

Both the expected-utility maximization and the hierarchy property are very important properties in stochastic dominance. For almost stochastic dominance, Leshno and Levy (2002) propose a definition and Tzeng et al. (2013) modified it to give another definition. This note provides more...

Recent work about risk preferences at the micro level mainly finds that changes in liquid wealth over time do not affect or have a positive effect on the liquid risky asset share. This paper embeds riskless noncapital income in standard portfolio choice models, and shows that exogenous...

We consider a life-cycle model with bequest motives, and assume that the individual does not know his/her survival probability and has maxmin utility preferences; we show that it is optimal not to annuitize but to purchase pure life insurance policies instead.