Ambiguity and asset pricing: An empirical investigation for an emerging market |
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| Affiliation: | 1. Central Bank of Turkey, Ümraniye, İstanbul, Turkey;2. Department of Business Administration, Middle East Technical University, 06800 Ankara, Turkey;1. School of International Economics and Trade, Nanjing University of Finance and Economics, Nanjing, China;2. Rotman Commerce, University of Toronto, Toronto, Canada;3. SHU-UTS SILC Business School, Shanghai University, 99 Shangda Road, Shanghai, China;1. School of Economics and Management, Beijing University of Chemical of Technology, Beijing, China;2. School of Economics and Management, Beijing Jiaotong University, Beijing, China;1. Department of Mathematics/Actuarial Science, Sungkyunkwan University, Seoul, Republic of Korea;2. Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea;3. Korea Fiscal Information Service, Seoul, Republic of Korea;1. Dongguk Business School, Dongguk University, 30, Pildong-ro 1-gil, Jung-gu, Seoul, Seoul 04620, Republic of Korea;2. Department of Economics and Finance, Soonchunhyang University, 22, Soonchunhyang-ro, Sinchang-myeon, Asan-si, Chungcheongnam-do 31538, Republic of Korea |
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| Abstract: | This study explores the impact of ambiguity on returns of both individual stocks and stock portfolios in an emerging market setting. First, an ambiguity index is derived and then the sensitivity of stock returns to ambiguity is analyzed while controlling for the other risk factors commonly cited in the literature. Results show that stocks with a high (low) sensitivity to ambiguity generate higher (lower) excess returns. These results are intuitive in the sense that investors seem to ask for lower returns from those stocks that serve as a natural hedge against ambiguity. Our findings are also in line with the earlier studies that provide similar evidence from the US stock markets. |
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