Thursday 23 February 2023 – 1:15pm-2:15pm
Home Bias and Learning in a Dynamic Portfolio Choice under Smooth Ambiguity
Silvia Faroni, PhD student, emlyon business school
Abstract:
We study the home bias in a dynamic consumption and portfolio choice problem where the investor is ambiguous about stock returns but learn about their distributions. The investor’s preference is modeled with the generalized recursive smooth ambiguity model of Ju and Miao (2012) that is able to separate among risk aversion, ambiguity aversion, and intertemporal substitution. To solve this problem, we develop a numerical approach which extends the existing ones to tackle the specificities of our framework. Our results show that ambiguity averse investors participate less in financial markets and have a higher home bias compared to ambiguity neutral decision makers. However, learning increases market participation and reduces the home bias which does not disappear due to the finite investment horizon. We finally provide comparative statics for risk aversion, ambiguity aversion and the learning process.
Registration, please contact robin@em-lyon.com
📍 The seminar will take place at emlyon business School (Ecully campus) – Building A, room 235
