Ambiguity and asset pricing: An empirical investigation for an emerging market

Sahin B. C., DANIŞOĞLU S.

INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS, vol.84, 2022 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 84
  • Publication Date: 2022
  • Doi Number: 10.1016/j.irfa.2022.102338
  • Journal Name: INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, ABI/INFORM, Business Source Elite, Business Source Premier, EconLit
  • Keywords: Ambiguity, Asset pricing, Ambiguity index, CROSS-SECTION, STOCK RETURNS, EXPECTED UTILITY, COMMON-STOCKS, RISK, EQUILIBRIUM, LIQUIDITY, UNCERTAINTY, VALUATION, ANOMALIES
  • Middle East Technical University Affiliated: Yes

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 am-biguity 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.