Decision making and financial markets under risk and ambiguity

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We study financial markets under ambiguity and asymmetric information. We consider two models. One model is a general equilibrium model. A necessary and sufficient condition for speculative trade is derived. In addition, different roles of the risk premium and the ambiguity premium on asset prices are studied. The other model is a global game model of financial crises under ambiguity. The relationship between ambiguity and the probability of crises is investigated. Furthermore, we empirically test our theoretical prediction.