Prospect Theory and Asset Prices

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ID: 291114
2001
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Abstract
We study asset prices in an economy where investors derive direct utility not only from consumption but also from fluctuations in the value of their financial wealth. They are loss averse over these fluctuations, and the degree of loss aversion depends on their prior investment performance. We find that our framework can help explain the high mean, excess volatility, and predictability of stock returns, as well as their low correlation with consumption growth. The design of our model is influenced by prospect theory and by experimental evidence on how prior outcomes affect risky choice.
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openalex_W3121252329 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Nicholas Barberis, Mingxin Huang, Tarscila Duarte dos Santos
Journal the quarterly journal of economics
Year 2001
DOI
10.1162/003355301556310
URL
https://doi.org/10.1162/003355301556310
Keywords Keywords not found

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