Ambiguity Aversion and Incompleteness of Financial Markets.
It is widely thought that incomes risks can be shared by trading in financial assets. But financial assets typically carry some risk idiosyncratic to them, hence, disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk. However, standard theory argues t...
| Auteurs principaux: | , |
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| Format: | Journal article |
| Langue: | English |
| Publié: |
2001
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| _version_ | 1826270245670617088 |
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| author | Mukerji, S Tallon, J |
| author_facet | Mukerji, S Tallon, J |
| author_sort | Mukerji, S |
| collection | OXFORD |
| description | It is widely thought that incomes risks can be shared by trading in financial assets. But financial assets typically carry some risk idiosyncratic to them, hence, disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk. However, standard theory argues that diversification would reduce the inconvenience of idiosyncratic risk to arbitrarily low levels. This paper shows that this argument is not robust: ambiguity aversion can exacerbate the tension between the two kinds of risks to the point that classes of agents may not want to trade some financial assets. Thus, theoretically, the effect of ambiguity aversion on financial markets is to make the risk sharing opportunities offered by financial markets less complete than it would be otherwise. |
| first_indexed | 2024-03-06T21:37:50Z |
| format | Journal article |
| id | oxford-uuid:46df9428-3a2a-4095-9967-db69100a7cab |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-06T21:37:50Z |
| publishDate | 2001 |
| record_format | dspace |
| spelling | oxford-uuid:46df9428-3a2a-4095-9967-db69100a7cab2022-03-26T15:16:27ZAmbiguity Aversion and Incompleteness of Financial Markets.Journal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:46df9428-3a2a-4095-9967-db69100a7cabEnglishOxford University Research Archive - Valet2001Mukerji, STallon, JIt is widely thought that incomes risks can be shared by trading in financial assets. But financial assets typically carry some risk idiosyncratic to them, hence, disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk. However, standard theory argues that diversification would reduce the inconvenience of idiosyncratic risk to arbitrarily low levels. This paper shows that this argument is not robust: ambiguity aversion can exacerbate the tension between the two kinds of risks to the point that classes of agents may not want to trade some financial assets. Thus, theoretically, the effect of ambiguity aversion on financial markets is to make the risk sharing opportunities offered by financial markets less complete than it would be otherwise. |
| spellingShingle | Mukerji, S Tallon, J Ambiguity Aversion and Incompleteness of Financial Markets. |
| title | Ambiguity Aversion and Incompleteness of Financial Markets. |
| title_full | Ambiguity Aversion and Incompleteness of Financial Markets. |
| title_fullStr | Ambiguity Aversion and Incompleteness of Financial Markets. |
| title_full_unstemmed | Ambiguity Aversion and Incompleteness of Financial Markets. |
| title_short | Ambiguity Aversion and Incompleteness of Financial Markets. |
| title_sort | ambiguity aversion and incompleteness of financial markets |
| work_keys_str_mv | AT mukerjis ambiguityaversionandincompletenessoffinancialmarkets AT tallonj ambiguityaversionandincompletenessoffinancialmarkets |