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View Submission - CFE
A1305
Title: Ambiguity, learning, and equilibrium portfolio flows Authors:  Thomas Dangl - TU Wien (Austria)
Lorenzo Garlappi - University of British Columbia (Canada)
Alex Weissensteiner - Free University of Bozen-Bolzano (Italy) [presenting]
Abstract: It is documented that institutional investors decrease their holdings of risky assets following both bad and good news about economic outcomes. While the reaction to bad news is consistent with documented evidence in which retail investors act as liquidity providers, the reaction of institutional investors to good news is a novel finding. We propose a general equilibrium model in which a Bayesian institution and an ambiguity averse retail investor learn about the dynamics of dividends in the economy. We show that learning about volatility and market clearing generates equilibrium patterns of portfolio flows, risk premia, and return predictability, consistent with the data