Theory and Decision

, Volume 74, Issue 2, pp 183–217 | Cite as

Ambiguity in asset pricing and portfolio choice: a review of the literature

  • Massimo GuidolinEmail author
  • Francesca Rinaldi


We survey the literature that has explored the implications of decision-making under ambiguity for financial market outcomes, such as portfolio choice and equilibrium asset prices. This ambiguity literature has led to a number of significant advances in our ability to rationalize empirical features of asset returns and portfolio decisions, such as the failure of the two-fund separation theorem in portfolio decisions, the modest exposure to risky securities observed for a majority of investors, the home equity preference in international portfolio diversification, the excess volatility of asset returns, the equity premium and the risk-free rate puzzles, and the occurrence of trading break-downs.


Ambiguity Ambiguity-aversion Participation Liquidity Asset pricing 

JEL Classification

G10 G18 D81 


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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.Department of Finance and IGIERBocconi UniversityMilanItaly
  2. 2.CAIR, Manchester Business SchoolManchesterUK
  3. 3.Banque de FranceParisFrance

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