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Two essays on ambiguity and asset pricing

Şahin, Baki Cem
This thesis consists of two essays on the impact of ambiguity on asset pricing. In the first essay, we provide a detailed review of theoretical models incorporating ambiguity into both decision-making and asset pricing models. In the framework of these discussions, we derive ambiguity indices and we provide both a comparison among themselves and an analysis showing the impact of ambiguity on asset pricing for Turkey. Our results confirm the existence of impact of ambiguity on asset returns even it is not strong. Second essay extents the analysis on the relationship between ambiguity and asset pricing by focusing on portfolio and stock level returns. The analysis incorporating other risk factors used commonly in the literature show that ambiguity is a factor priced in stock returns in Turkey.