Professor Tan Wang, Deputy Dean and Chair Professor of Finance at the Shanghai Advanced Institute of Finance (SAIF), has published groundbreaking research in the prestigious journal Management Science. The paper, "Volatility Ambiguity, Portfolio Decisions, and Equilibrium Asset Pricing," was co-authored with Yu Liu, Hao Wang, and Lihong Zhang.

Abstract

This research introduces an innovative framework for analyzing volatility ambiguity and its effects on equilibrium consumption, wealth allocation, and asset pricing dynamics. Our methodology transcends traditional constraints by eliminating the requirement for prior equivalence. We develop an ambiguity measure founded on the agent's confidence in the reference model, which can be evaluated using sample statistics. The approach offers both analytical tractability and empirical applicability. Notably, our model demonstrates that observed patterns in U.S. equity premium and consumption growth can be explained through moderate levels of volatility ambiguity alone, while maintaining a relative risk aversion (RRA) coefficient within parameters established by Mehra and Prescott (1985) and Munk (2013).