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Ambiguity about volatility and investor behavior

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  • Kostopoulos, Dimitrios
  • Meyer, Steffen
  • Uhr, Charline

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.

Suggested Citation

  • Kostopoulos, Dimitrios & Meyer, Steffen & Uhr, Charline, 2022. "Ambiguity about volatility and investor behavior," Journal of Financial Economics, Elsevier, vol. 145(1), pages 277-296.
    • Handle: RePEc:eee:jfinec:v:145:y:2022:i:1:p:277-296
    DOI: 10.1016/j.jfineco.2021.07.004
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    More about this item

    Keywords

    Ambiguity; Uncertainty; Individual investor; Risk-taking; Trading behavior;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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