Equilibrium in an ambiguity-averse mean-variance investors market

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dc.citation.epage965en_US
dc.citation.issueNumber3en_US
dc.citation.spage957en_US
dc.citation.volumeNumber237en_US
dc.contributor.authorPınar, M. Ç.en_US
dc.date.accessioned2015-07-28T12:02:27Z
dc.date.available2015-07-28T12:02:27Z
dc.date.issued2014-09-16en_US
dc.departmentDepartment of Industrial Engineeringen_US
dc.description.abstractIn a financial market composed of n risky assets and a riskless asset, where short sales are allowed and mean–variance investors can be ambiguity averse, i.e., diffident about mean return estimates where confidence is represented using ellipsoidal uncertainty sets, we derive a closed form portfolio rule based on a worst case max–min criterion. Then, in a market where all investors are ambiguity-averse mean–variance investors with access to given mean return and variance–covariance estimates, we investigate conditions regarding the existence of an equilibrium price system and give an explicit formula for the equilibrium prices. In addition to the usual equilibrium properties that continue to hold in our case, we show that the diffidence of investors in a homogeneously diffident (with bounded diffidence) mean–variance investors’ market has a deflationary effect on equilibrium prices with respect to a pure mean–variance investors’ market in equilibrium. Deflationary pressure on prices may also occur if one of the investors (in an ambiguity-neutral market) with no initial short position decides to adopt an ambiguity-averse attitude. We also establish a CAPM-like property that reduces to the classical CAPM in case all investors are ambiguity-neutral.en_US
dc.identifier.doi10.1016/j.ejor.2014.02.016en_US
dc.identifier.eissn1872-6860
dc.identifier.issn0377-2217
dc.identifier.urihttp://hdl.handle.net/11693/12664
dc.language.isoEnglishen_US
dc.publisherElsevieren_US
dc.relation.isversionofhttp://dx.doi.org/10.1016/j.ejor.2014.02.016en_US
dc.source.titleEuropean Journal of Operational Researchen_US
dc.subjectRobust Optimizationen_US
dc.subjectMean–variance Portfolio Theoryen_US
dc.subjectEllipsoidal Uncertaintyen_US
dc.subjectEquilibrium Price Systemen_US
dc.titleEquilibrium in an ambiguity-averse mean-variance investors marketen_US
dc.typeArticleen_US

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