Abstract
We study the asset pricing implications of Tversky and Kahneman’s (1992) cumulative prospect theory, with a particular focus on its probability weighting component. Our main result, derived from a novel equilibrium with nonunique global optima, is that, in contrast to the prediction of a standard expected utility model, a security’s own skewness can be priced: a positively skewed security can be “overpriced” and can earn a negative average excess return. We argue that our analysis offers a unifying way of thinking about a number of seemingly unrelated financial phenomena.
Original language | English |
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Pages (from-to) | 2066-2100 |
Journal | American Economic Review |
Volume | 98 |
Issue number | 5 |
DOIs | |
Publication status | Published - 2008 |
Corresponding author email
nick.barberis@yale.eduProject name
NATIONAL BUREAU OF ECONOMIC RESEARCHProject sponsor
其他Project No.
12936Keywords
- AGGLOMERATION ECONOMIES
- ASSET PRICES
- CENTRAL-EUROPE
- CHINA
- DETERMINANTS
- DIVERSIFICATION
- ENTRY MODE CHOICE
- EQUITY PREMIUM PUZZLE
- JOINT VENTURES
- LOCATION
- MULTINATIONAL-ENTERPRISE
- PERFORMANCE
- PROSPECT-THEORY
- RETURNS
- RISK-AVERSION
- SKEWNESS PREFERENCE
- TRANSACTION COSTS THEORY
- UNITED-STATES
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