Abstract
This article analyzes investors' portfolio selection problems in a two-period dynamic model of Knightian uncertainty. We account for the existence of portfolio inertia in this two-period framework. Furthermore, by incorporating investors' updating behavior, we analyze how observing new information in the first period will affect investors' behavior. By this analysis, we show that observing new information in the first period will expand portfolio inertia in the second period compared with the case in which observing new information has not been gained in the first period if the degree of Knightian uncertainty is sufficiently large.
| Original language | English |
|---|---|
| Pages (from-to) | 341-365 |
| Number of pages | 25 |
| Journal | Theory and Decision |
| Volume | 68 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - Mar 2010 |
| Externally published | Yes |
Keywords
- E-contaminations
- Knightian uncertainty
- Portfolio inertia
- Portfolio selection problem
ASJC Scopus subject areas
- Decision Sciences(all)
- Developmental and Educational Psychology
- Arts and Humanities (miscellaneous)
- Applied Psychology
- Social Sciences(all)
- Economics, Econometrics and Finance(all)
- Computer Science Applications
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Cite this
Asano, T. (2010). Portfolio inertia and epsilon-contaminations. Theory and Decision, 68(3), 341-365. https://doi.org/10.1007/s11238-008-9101-7