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Asset pricing with loss aversion

Title data

Grüne, Lars ; Semmler, Willi:
Asset pricing with loss aversion.
In: Journal of Economic Dynamics and Control. Vol. 32 (October 2008) Issue 10 . - pp. 3253-3274.
ISSN 1879-1743
DOI: https://doi.org/10.1016/j.jedc.2008.01.002

Abstract in another language

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: Article in a journal
Refereed: Yes
Keywords: Behavioral finance; Loss aversion; Stochastic growth models; Asset Pricing and stochastic dynamic programming
Institutions of the University: 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)
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
Result of work at the UBT: Yes
DDC Subjects: 500 Science
500 Science > 510 Mathematics
Date Deposited: 04 Mar 2021 13:51
Last Modified: 23 Mar 2021 09:12
URI: https://eref.uni-bayreuth.de/id/eprint/63691