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Asset pricing with loss aversion

DOI zum Zitieren der Version auf EPub Bayreuth: https://doi.org/10.15495/EPub_UBT_00005568
URN to cite this document: urn:nbn:de:bvb:703-epub-5568-0

Title data

Grüne, Lars ; Semmler, Willi:
Asset pricing with loss aversion.
Bayreuth , 2007

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Abstract

The use of standard preferences for asset pricing has not been very successful in matching asset price characteristics, such as therisk-free interest rate, equity premium and the Sharpe ratio, to time seriesdata. Behavioral finance has recently proposed more realistic preferences such as those with loss aversion. Research is starting to explore theimplications of behaviorally founded preferences for asset pricecharacteristics. Encouraged by some studies of S. Benartzi and R. H. Thaler [Q. J. Econ. 110, No. 1, 73--92 (1995; Zbl 0829.90040)] and N. Barberis, M. Huang and T. Santos [Q. J. Econ. 116, No. 1, 1--53 (2001; Zbl 0979.91025)] we study asset pricing with loss aversion in aproduction economy. Here, we employ a stochastic growth model and use a stochastic version of a dynamic programming method with an adaptive grid scheme to compute the above mentioned asset price characteristics of a model with loss aversion in preferences. As our results show using loss aversion we get considerably better results than one usually obtains from pureconsumption-based asset pricing models including the habit formation Variant.

Further data

Item Type: Preprint, postprint
Additional notes (visible to public): Erscheint in:
Journal of Economic Dynamics and Control. Bd. 32 (Oktober 2008) Heft 10 . - S. 3253-3274; DOI: https://doi.org/10.1016/j.jedc.2008.01.002
Keywords: Behavioral finance; Loss aversion; Stochastic growth models; Asset Pricing and stochastic dynamic programming
DDC Subjects: 500 Science
500 Science > 510 Mathematics
Institutions of the University: Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics > Chair Mathematics V (Applied Mathematics) > Chair Mathematics V (Applied Mathematics) - Univ.-Prof. Dr. Lars Grüne
Faculties
Faculties > Faculty of Mathematics, Physics und Computer Science
Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics
Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics > Chair Mathematics V (Applied Mathematics)
Language: English
Originates at UBT: Yes
URN: urn:nbn:de:bvb:703-epub-5568-0
Date Deposited: 20 May 2021 07:58
Last Modified: 15 Jun 2021 08:08
URI: https://epub.uni-bayreuth.de/id/eprint/5568

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