  We consider portfolio selection under nonparametric $\alpha$-maxmin ambiguity
in the neighbourhood of a reference distribution. We show strict concavity of
the portfolio problem under ambiguity aversion. Implied demand functions are
nondifferentiable, resemble observed bid-ask spreads, and are consistent with
existing parametric limiting participation results under ambiguity. Ambiguity
seekers exhibit a discontinuous demand function, implying an empty set of
reservation prices. If agents have identical, or sufficiently similar prior
beliefs, the first-best equilibrium is no trade. Simple conditions yield the
existence of a Pareto-efficient second-best equilibrium, implying that
heterogeneity in ambiguity preferences is sufficient for mutually beneficial
transactions among all else homogeneous traders. These equilibria reconcile
many observed phenomena in liquid high-information financial markets, such as
liquidity dry-ups, portfolio inertia, and negative risk premia.
