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Title: Portfolio Allocation Problems between Risky and Ambiguous Assets
Authors: Asano, Takao
Osaki, Yusuke
Keywords: Home Bias Puzzle
Portfolio Allocation Problem
Smooth Ambiguity Model
Issue Date: 28-Aug-2017
Publisher: Institute of Economic Research, Kyoto University
Journal title: KIER Discussion Paper
Volume: 975
Start page: 1
End page: 25
Abstract: This paper considers a portfolio allocation problem between a risky asset and an ambiguous asset, and investigates how the existence of ambiguity influences the optimal proportion invested in the two assets. By introducing the notion of ambiguity, we derive several sufficient conditions under which an investor decreases the optimal proportion invested in the ambiguous asset. Furthermore, as an application, we consider an international diversification problem, and show that the home bias puzzle is partially resolved.
Appears in Collections:KIER Discussion Paper (English)

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