Illyés, Á. (2017). The effect of information on ambiguous portfolio choices [Master Thesis, Technische Universität Wien]. reposiTUm. https://doi.org/10.34726/hss.2017.46244
Smooth ambiguity aversion; Portfolio choice; Information
de
Abstract:
This paper analyzes an extension of the portfolio choice model under ambiguity of Gollier (2011) which uses the smooth model of ambiguity. It introduces an additional information setting the investor can acquire that can reduce the exposure to ambiguity. Within this framework it is shown that acquiring information about the plausible return distributions increases the ex ante welfare of the investor. The relation of the average ex ante investment and the original investment level under no information is also examined. Throughout various examples it is demonstrated that this relation is not so clear. When the case of constant absolute ambiguity aversion is considered, however it can be established that under certain conditions information increases the average investment, as absolute ambiguity aversion tends to infinity.