Ambiguity aversion and household portfolio choice puzzles: Empirical evidence.
We test the relation between ambiguity aversion and five household portfolio choice puzzles: nonparticipation in equities, low allocations to equity, home bias, own company stock ownership, and portfolio under diversification. In a representative US household survey, we measure ambiguity preferences using custom designed questions based on Ellsberg urns. As theory predicts, ambiguity aversion is negatively associated with stock market participation, the fraction of financial assets in stocks, and foreign stock ownership, but it is positively related to own company stock ownership. Conditional on stock ownership, ambiguity aversion is related to portfolio under diversification, and during the financial crisis, ambiguity averse respondents were more likely to sell stocks.
Journal of financial economics