Abstract
AbstractThis paper examines the comparative statics of optimal risky demand when economic agents are both risk averse and ambiguity averse. In a setting with log‐Brownian asset prices and ‐ambiguity but virtually for all utility functions, we show that the greater the Arrow–Pratt coefficient of absolute risk aversion under ambiguity, the less the optimal demand for risky assets. This monotonic property is demonstrated with varying risk‐free interest rate and allows for distinct estimated model parameters across agents.
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