Ambiguity, Risk Aversion and Excess Volatility
- Title
- Ambiguity, Risk Aversion and Excess Volatility
- Authors
- HAHN, GUANGSUG; KWON, JOON YEOP
- Date Issued
- 2020-11-13
- Publisher
- 한국금융공학회
- Abstract
- The paper investigates how ambiguous information in stock markets affects the occurrence
of excess volatility of stock prices. To do this, we adopt the framework of Grossman and
Stiglitz (1980) where uninformed traders have ambiguous information about a firm’s fundamental
value. We find that, in generating excess volatility, the role of ambiguity is subject
to the degree of traders’ risk aversion. If the degree of risk aversion is sufficiently low, excess
volatility does not arise, even when the degree of ambiguity is extremely high. On the
contrary, if traders are sufficiently risk-averse, excess volatility occurs irrespective of ambiguity.
Only when traders are moderately risk-averse, a higher degree of ambiguity leads to
a higher likelihood of excess volatility.
- URI
- https://oasis.postech.ac.kr/handle/2014.oak/105651
- Article Type
- Conference
- Citation
- Conference of Korean Association of Financial, 2020-11-13
- Files in This Item:
- There are no files associated with this item.
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.