Brown Bag Seminar with Kim Peijnenburg, Bocconi University
The Department of Finance is happy to announce the upcoming Brown Bag Seminar with Kim Peijnenburg, Bocconi University.
Kim Peijnenburg will present
I show that ambiguity and learning about the equity premium can simultaneously explain the low fraction of financial wealth allocated to stocks over the life cycle and the stock market participation puzzle. Individuals are ambiguous about the size of the equity premium and are averse with respect to this ambiguity, resulting in lower stock allocations over the life cycle consistent with the data. As agents get older, they learn about the equity premium and increase their allocation to stocks. Furthermore, I find that ambiguity leads to higher saving rates. Similar results cannot be obtained by assuming higher risk aversion.