English, Article edition: Asset Prices Under Prospect Theory and Habit Formation Mao-Wei Hung; Jr-Yan Wang

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Asset Prices Under Prospect Theory and Habit Formation
Author
  • Mao-Wei Hung
  • Jr-Yan Wang
Physical Description
  • article
Notes
  • In this paper, we develop a consumption-based asset pricing model motivated by prospect theory, where habit formation determines the endogenous reference point. This exploits the similarity between habit formation and prospect theory. Both emphasize that the investor does not care about the absolute amount of gain or loss, but rather compares the gain or the loss experienced to a benchmark. The results show that when taking people's loss averse attitude over consumption into consideration, our model is capable of resolving the equity premium puzzle.
  • Prospect theory, habit formation, loss aversion, consumption-based asset pricing model
  • RePEc:wsi:rpbfmp:v:08:y:2005:i:01:p:1-29
Language
  • English
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