Language: 日本語 English


Takashi Ui
Sun, 2009-02-01

This paper considers a stock market with ambiguity-averse informed investors 

under the CARA-normal setting, and studies the relationship between limited mar- 

ket participation and the equity premium which is decomposed into the risk premium 

and the ambiguity premium. In a rational expectations equilibrium, limited market 

participation arises if the largest deviation of investors’ ambiguity increases suffi- 

ciently or if the variance of the stock return decreases sufficiently. In each case, a 

change in the risk premium and a change in the ambiguity premium may have oppo- 

site signs. This paper identifies conditions under which a change with the plus sign 

dominates and thus the equity premium increases when fewer investors participate 

in the stock market.