Ambiguity about volatility and investor behavior

Dimitrios Kostopoulos, Steffen Meyer*, Charline Uhr

*Corresponding author for this work

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

20 Citations (Scopus)

Abstract

We relate time-varying aggregate ambiguity about volatility (V-VSTOXX) to individual investor trading. We use the trading records of more than 100,000 individual investors from a large German online brokerage from March 2010 to December 2015. We find that an increase in ambiguity is associated with increased investor activity. It also leads to a reduction in risk-taking, which does not reverse over the following days. Ambiguity averse investors are more prone to ambiguity shocks. These results replicate when using the dispersion of professional forecasters as a long-term measure of ambiguity and are robust when controlling for newspaper- or market-based ambiguity measures.

Original languageEnglish
JournalJournal of Financial Economics
Volume145
Issue1
Pages (from-to)277-296
Number of pages20
ISSN0304-405X
DOIs
Publication statusPublished - Jul 2022
Externally publishedYes

Keywords

  • Ambiguity
  • Individual investor
  • Risk-taking
  • Trading behavior
  • Uncertainty

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