FN Clarivate Analytics Web of Science VR 1.0 PT J AU Li, Y Yang, LY AF Li, Yan Yang, Liyan TI Prospect theory, the disposition effect, and asset prices SO JOURNAL OF FINANCIAL ECONOMICS LA English DT Article DE Prospect theory; Disposition effect; Momentum; Reversal; Turnover ID LOSS AVERSION; TRADING VOLUME; STOCK-MARKET; BEHAVIORAL BIASES; PREFERENCE; MOMENTUM; OVERCONFIDENCE; EQUILIBRIUM; UNCERTAINTY; LIQUIDATION AB We build a general equilibrium model to examine the implications of prospect theory for the disposition effect, asset prices, and trading volume. Diminishing sensitivity predicts a disposition effect, price momentum, a reduced return volatility, and a positive return-volume correlation. Loss aversion generally predicts the opposite. In calibrated economies, there is a nontrivial range of preference parameters for prospect theory to simultaneously explain the disposition effect, the momentum effect, and the equity premium puzzle. Our model is helpful for understanding a wide range of financial phenomena and it also suggests new testable predictions. (C) 2012 Elsevier B.V. All rights reserved. C1 [Li, Yan] Temple Univ, Dept Finance, Fox Sch Business, Philadelphia, PA 19122 USA. [Yang, Liyan] Univ Toronto, Rotman Sch Management, Toronto, ON M5S 3E6, Canada. RP Yang, LY (autor correspondente), Univ Toronto, Rotman Sch Management, 105 St George St, Toronto, ON M5S 3E6, Canada. 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J. Econ. PD FEB PY 2001 VL 116 IS 1 BP 1 EP 53 DI 10.1162/003355301556310 PG 53 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 404JX UT WOS:000167095200001 OA Green Published DA 2022-08-04 ER PT J AU Grune, L Semmler, W AF Gruene, Lars Semmler, Willi TI Asset pricing with loss aversion SO JOURNAL OF ECONOMIC DYNAMICS & CONTROL LA English DT Article DE Behavioral finance; Loss aversion; Stochastic growth models; Asset pricing and stochastic dynamic programming ID EQUITY PREMIUM PUZZLE; PROSPECT-THEORY; PRICES; UNCERTAINTY; ECONOMY; GROWTH; MODELS; RISK AB The use of standard preferences for asset pricing has not been very successful in matching asset price characteristics, such as the risk-free interest rate, equity premium and the Sharpe ratio, to time series data. Behavioral finance has recently proposed more realistic preferences such as those with loss aversion. Research is starting to explore the implications of behaviorally founded preferences for asset price characteristics. Encouraged by some studies of Benartzi and Thaler [1995. Myopic loss aversion and the equity premium puzzle. The Quarterly Journal of Economics 110 (1), 73-92] and Barberis et al. [2001. Prospect theory and asset prices. Quarterly Journal of Economics CXVI (1), 1-53] we study asset pricing with loss aversion in a production 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 pure consumption-based asset pricing models including the habit formation variant. (C) 2008 Published by Elsevier B.V. C1 [Semmler, Willi] New Sch Social Res, Dept Econ, New York, NY 10003 USA. 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Econ. Dyn. Control PD OCT PY 2008 VL 32 IS 10 BP 3253 EP 3274 DI 10.1016/j.jedc.2008.01.002 PG 22 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 361BQ UT WOS:000260102900008 OA Green Published DA 2022-08-04 ER PT J AU Dierkes, M Germer, S Sejdiu, V AF Dierkes, Maik Germer, Stephan Sejdiu, Vulnet TI Probability distortion, asset prices, and economic growth SO JOURNAL OF BEHAVIORAL AND EXPERIMENTAL ECONOMICS LA English DT Article DE Economic growth; Probability distortion; Suboptimal decision making ID PROSPECT-THEORY; STOCK RETURNS; PREDICTIVE ACCURACY; WEIGHTING FUNCTION; DECISION-MAKING; RISK-FACTORS; MARKET; PSYCHOLOGY; LOTTERIES; ATTITUDES AB In this paper, we link stock market investors' probability distortion to future economic growth. The empirical challenge is to quantify the optimality of today's decision making to test for its impact on future economic growth. Fortunately, risk preferences can be estimated from stock markets. Using monthly aggregate stock prices from 1926 to 2015, we estimate risk preferences via an asset pricing model with Cumulative Prospect Theory (CPT) agents and distill a recently proposed probability distortion index. This index negatively predicts GDP growth in-sample and out-of-sample. Predictability is stronger and more reliable over longer horizons. Our results suggest that distorted asset prices may lead to significant welfare losses. C1 [Dierkes, Maik; Germer, Stephan; Sejdiu, Vulnet] Leibniz Univ Hannover, Inst Banking & Finance, Konigsworther Pl 1, D-30167 Hannover, Germany. RP Dierkes, M (autor correspondente), Leibniz Univ Hannover, Inst Banking & Finance, Konigsworther Pl 1, D-30167 Hannover, Germany. EM maik.dierkes@finance.uni-hannover.de; stephan.germer@finance.uni-hannover.de; vulnet.sejdiu@finance.uni-hannover.de FU Dr. Werner Jackstadt Foundation FX We are particularly grateful to the Dr. Werner Jackstadt Foundation for financial support. We thank an anonymous referee, Stefan Trautmann (the Editor), Florian Weigert, Giuliano Curatola, Ivalina Kalcheva, participants at the Swiss Finance Conference 2016, the German Finance Association Annual Meeting 2016, the Research in Behavioral Finance Conference 2016, and the Financial Management Association Annual Meeting 2018 for valuable comments and suggestions. 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PD AUG PY 2019 VL 101 BP 315 EP 322 DI 10.1016/j.jbusres.2019.04.038 PG 8 WC Business WE Social Science Citation Index (SSCI) SC Business & Economics GA IF8YK UT WOS:000473379000027 OA Green Submitted DA 2022-08-04 ER PT J AU Barberis, N Mukherjee, A Wang, BL AF Barberis, Nicholas Mukherjee, Abhiroop Wang, Baolian TI Prospect Theory and Stock Returns: An Empirical Test SO REVIEW OF FINANCIAL STUDIES LA English DT Article ID MUTUAL FUND PERFORMANCE; ASSET PRICING TESTS; CROSS-SECTION; EXPECTED RETURNS; EVALUATION PERIODS; LOSS AVERSION; RISK-TAKING; LOTTERIES; SKEWNESS; PRICES AB We test the hypothesis that, when thinking about allocating money to a stock, investors mentally represent the stock by the distribution of its past returns and then evaluate this distribution in the way described by prospect theory. 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Financ. Stud. PD NOV PY 2016 VL 29 IS 11 BP 3068 EP 3107 DI 10.1093/rfs/hhw049 PG 40 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA EC3LF UT WOS:000388026900006 DA 2022-08-04 ER PT J AU Easley, D Yang, LY AF Easley, David Yang, Liyan TI Loss aversion, survival and asset prices SO JOURNAL OF ECONOMIC THEORY LA English DT Article DE Loss aversion; Narrow framing; Epstein-Zin preferences; Market selection; Asset prices ID PROSPECT-THEORY; EQUITY PREMIUM; RISK-AVERSION; SELECTION; MARKETS; HETEROGENEITY AB This paper studies the wealth and pricing implications of loss aversion in the presence of arbitrageurs with Epstein-Zin preferences. Loss aversion affects an investor's survival prospects mainly through its effect on the investor's portfolio holdings. Loss-averse investors will be driven out of the market and do not affect long-run prices if their portfolio positions are further away from those corresponding to the log investor than arbitrageurs. In terms of wealth shares, the market selection process can be slow, but the selection force is nonetheless effective in terms of price impact, which highlights the importance of introducing preference heterogeneity in understanding asset prices. (C) 2015 Elsevier Inc. All rights reserved. C1 [Easley, David] Cornell Univ, Dept Econ, Ithaca, NY 14853 USA. [Yang, Liyan] Univ Toronto, Joseph L Rotman Sch Management, Dept Finance, Toronto, ON M5S 3E6, Canada. [Yang, Liyan] Peking Univ, Guanghua Sch Management, Beijing 100871, Peoples R China. RP Easley, D (autor correspondente), Cornell Univ, Dept Econ, Ithaca, NY 14853 USA. EM dae3@cornell.edu; liyan.yang@rotman.utoronto.ca OI Yang, Liyan/0000-0002-2599-1328 FU SSHRC [435-2012-0051, 435-2013-0078] FX We thank the editor (Xavier Vives) and three anonymous referees for constructive comments that have significantly improved the paper. We also thank Hengjie Ai, Nick Barberis, Shmuel Baruch, Suleyman Basak, Hank Bessembinder, Larry Blume, Peter Bossaerts, Melanie Cao, Scott Condie, Ian Dew-Becker, Guo Ying (Rosemary) Luo, Ted O'Donoghue, Maureen O'Hara, Cedric Okou, Paolo Pasquariello, Lin Peng, Hersh Shefrin, Xinli Wang, Jason Wei, Wei Xiong, Hongjun Yan and the audiences at various conferences and seminars for helpful comments. We thank the 2012 NFA Annual Conference for awarding the best-paper prize to this paper. Yang thanks SSHRC for financial support (Insight Grants 435-2012-0051 and 435-2013-0078). 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Financ. PD OCT PY 2021 VL 76 IS 5 BP 2639 EP 2687 DI 10.1111/jofi.13061 EA JUN 2021 PG 49 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA UM3TH UT WOS:000663200000001 OA Green Published, Green Accepted DA 2022-08-04 ER PT J AU Kleinlercher, D Huber, J Kirchler, M AF Kleinlercher, Daniel Huber, Juergen Kirchler, Michael TI The impact of different incentive schemes on asset prices SO EUROPEAN ECONOMIC REVIEW LA English DT Article DE Incentives; Trading behavior; Market efficiency; Experimental finance ID PROSPECT-THEORY; BUBBLES; EXPECTATIONS; LOTTERIES; MARKETS; CRASHES; RISK AB How people are incentivized is one of the main drivers of how they behave. In laboratory asset markets we evaluate the impact of four trader incentive bonus, bonus with cap, linear, and penalty - on asset prices and trader behavior. 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Econ. Rev. PD MAY PY 2014 VL 68 BP 137 EP 150 DI 10.1016/j.euroecorev.2014.02.010 PG 14 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA AI2ND UT WOS:000336694100009 DA 2022-08-04 ER PT J AU Berkelaar, A Kouwenberg, R AF Berkelaar, Arjan Kouwenberg, Roy TI From boom 'til bust: How loss aversion affects asset prices SO JOURNAL OF BANKING & FINANCE LA English DT Article DE Asset pricing; Equilibrium; Behavioral finance; Loss aversion ID PROSPECT-THEORY; CONSUMPTION; EXPLANATION; EQUILIBRIUM; CHOICE; HABIT AB This article studies the impact of heterogeneous loss averse investors on asset prices. In very good states loss averse investors become gradually less risk averse as wealth rises above their reference point, pushing up equity prices. When wealth drops below the reference point the investors become risk seeking and demand for stocks increases drastically, eventually leading to a forced sell-off and stock market bust in bad states. 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Bank Financ. PD JUN PY 2009 VL 33 IS 6 BP 1005 EP 1013 DI 10.1016/j.jbankfin.2008.10.019 PG 9 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 434YI UT WOS:000265309800003 OA Green Submitted DA 2022-08-04 ER PT J AU Henderson, V AF Henderson, Vicky TI Prospect Theory, Liquidation, and the Disposition Effect SO MANAGEMENT SCIENCE LA English DT Article DE prospect theory; behavioral finance; disposition effect; liquidation; optimal stopping ID LOSS AVERSION; PORTFOLIO SELECTION; EXERCISE; BEHAVIOR; OPTION; LONG AB There is a well-known intuition linking prospect theory with the disposition effect, the tendency of investors to sell assets that have risen in value rather than fallen. Recently, several authors have studied rigorous models in an attempt to formalize the intuition. 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TI A Kuhnian perspective on asset pricing theory SO JOURNAL OF ECONOMIC METHODOLOGY LA English DT Article DE Kuhn; asset pricing; imperfect knowledge economics ID PROSPECT-THEORY; EXCHANGE-RATE; STOCK; RETURNS; EXPECTATIONS; FUNDAMENTALS; CONSUMPTION; INFORMATION; MARKETS; LIMITS AB This article argues that the field of asset pricing theory is undergoing a scientific revolution in Kuhnian terms. The orthodox view is one of determinate change in causal processes and inherent stability whereby financial markets, left unfettered, allocate nearly perfectly society's scare capital. However, decades of mounting anomalous evidence against the implications of stable causal processes perpetuated by conventional models based on efficient markets and the rational expectations hypothesis have paved the way for alternative avenues of research. 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Econ. Methodol. PY 2015 VL 22 IS 1 BP 28 EP 45 DI 10.1080/1350178X.2014.1003578 PG 18 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA V67LJ UT WOS:000211305000002 DA 2022-08-04 ER PT J AU Crockett, S Duffy, J Izhakian, Y AF Crockett, Sean Duffy, John Izhakian, Yehuda TI An Experimental Test of the Lucas Asset Pricing Model SO REVIEW OF ECONOMIC STUDIES LA English DT Article DE Asset pricing; Lucas Tree Model; Experimental economics; General equilibrium; Intertemporal choice; Macrofinance; Consumption smoothing ID STOCHASTIC CONSUMPTION; FINANCIAL-MARKETS; PROSPECT-THEORY; EQUITY PREMIUM; RISK-AVERSION; BUBBLES; EXPECTATIONS; PRICES; UNCERTAINTY; DEMAND AB We implement a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In the first treatment, we impose diminishing marginal returns to cash to incentivize consumption smoothing across periods. We find that subjects use the asset to smooth consumption, although the asset trades at a discount relative to the risk-neutral fundamental price. This under-pricing is a departure from the asset price bubbles observed in the large experimental asset pricing literature originating with Smith et al. (1988) and can be rationalized by considering subjects' risk aversion with respect to uncertain money earnings. In a second treatment, with no induced motivation for trade a la the Smith et al. design, we find that the asset trades at a premium relative to its expected value and that shareholdings are highly concentrated. Elimination of asset price uncertainty in additional experimental treatments serves to reinforce the same observations, and suggests that speculative behaviour explains the departure of prices from fundamental value in the absence of a consumption-smoothing motive for asset trades. C1 [Crockett, Sean; Izhakian, Yehuda] CUNY, New York, NY 10017 USA. [Crockett, Sean] Baruch Coll, New York, NY 10010 USA. [Duffy, John] Univ Calif Irvine, Irvine, CA USA. RP Crockett, S (autor correspondente), CUNY, New York, NY 10017 USA.; Crockett, S (autor correspondente), Baruch Coll, New York, NY 10010 USA. RI Duffy, John/F-6968-2015 OI Duffy, John/0000-0002-7660-2281 FU Dietrich School of Arts and Sciences of the University of Pittsburgh; National Science Foundation [SES-1357895] FX For useful comments and suggestions, we thank the editor, Dimitri Vayanos, and four anonymous referees, as well as Elena Asparouhova, Peter Bossaerts, Craig Brown, Guillaume Frechette, John Geanakoplos, Steven Gjerstad, David Porter, Stephen Spear and seminar participants at various conferences and universities. We thank Jonathan Lafky for assistance with programming the experiment. Funding for this project was provided by the Dietrich School of Arts and Sciences of the University of Pittsburgh. S. C. acknowledges funding from the National Science Foundation under grant SES-1357895. 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Econ. Stud. PD MAR PY 2019 VL 86 IS 2 BP 627 EP 667 DI 10.1093/restud/rdy035 PG 41 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA HY2QN UT WOS:000467968000006 OA Green Submitted, Green Published DA 2022-08-04 ER PT J AU Yogo, M AF Yogo, Motohiro TI Asset prices under habit formation and reference-dependent preferences SO JOURNAL OF BUSINESS & ECONOMIC STATISTICS LA English DT Article DE asset pricing; consumption; equity premium; habit formation; loss aversion ID EQUITY PREMIUM PUZZLE; RISK-AVERSION; PROSPECT-THEORY; INTERTEMPORAL SUBSTITUTION; WEAK IDENTIFICATION; GENERALIZED-METHOD; SAMPLE PROPERTIES; CONSUMPTION; RETURNS; ESTIMATORS AB This article explains the high level and the countercyclical variation of the equity premium in a consumption-based asset pricing model with low large-scale risk aversion. Investors have gain-loss utility over consumption relative to slowly time-varying habit. Stocks deliver low returns in recessions when consumption falls below habit; investors therefore require a high premium for holding stocks. The model's conditional moment restrictions are tested on consumption and asset returns data. The empirical estimate of large-scale risk aversion is low, whereas the estimate of loss aversion agrees with prior experimental evidence. C1 [Yogo, Motohiro] Univ Penn, Wharton Sch, Philadelphia, PA 19104 USA. [Yogo, Motohiro] Natl Bur Econ Res, Cambridge, MA 02138 USA. RP Yogo, M (autor correspondente), Univ Penn, Wharton Sch, Philadelphia, PA 19104 USA. 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Bus. Econ. Stat. PD APR PY 2008 VL 26 IS 2 BP 131 EP 143 DI 10.1198/073500107000000205 PG 13 WC Economics; Social Sciences, Mathematical Methods; Statistics & Probability WE Science Citation Index Expanded (SCI-EXPANDED); Social Science Citation Index (SSCI) SC Business & Economics; Mathematical Methods In Social Sciences; Mathematics GA 275FI UT WOS:000254056900001 OA Green Submitted DA 2022-08-04 ER PT J AU Weber, M Camerer, CF AF Weber, M Camerer, CF TI The disposition effect in securities trading: an experimental analysis SO JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION LA English DT Article DE disposition effect; prospect theory; trading volume ID ASSET PRICING MODEL; EXPERIMENTAL TESTS; SEPARATION THEOREM; PROSPECT-THEORY; DECISION; CHOICE AB The 'disposition effect' is the tendency to sell assets that have gained value ('winners') and keep assets that have lost value ('losers'). Disposition effects can be explained by the two features of prospect theory: the idea that people value gains and losses relative to a reference point (the initial purchase price of shares), and the tendency to seek risk when faced with possible losses, and avoid risk when a certain gain is possible. Our experiments were designed to see if subjects would exhibit disposition effects. Subjects bought and sold shares in six risky assets. Asset prices fluctuated in each period. Contrary to Bayesian optimization, subjects did tend to sell winners and keep losers. When the shares were automatically sold after each period, the disposition effect was greatly reduced. Published by Elsevier Science B.V. C1 CALTECH, Div Humanities & Social Sci, Pasadena, CA 91125 USA. Univ Mannheim, Fak Betriebswirtschaftslehre, D-68131 Mannheim, Germany. RP Camerer, CF (autor correspondente), CALTECH, Div Humanities & Social Sci, 228-77, Pasadena, CA 91125 USA. 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PD JAN PY 1998 VL 33 IS 2 BP 167 EP 184 DI 10.1016/S0167-2681(97)00089-9 PG 18 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA YZ498 UT WOS:000072260100002 OA Green Submitted DA 2022-08-04 ER PT J AU Ravn, SH AF Ravn, Soren Hove TI Asymmetric monetary policy towards the stock market: A DSGE approach SO JOURNAL OF MACROECONOMICS LA English DT Article DE Asymmetries; Monetary policy; Asset prices; DSGE modeling ID FINANCIAL ACCELERATOR; PROSPECT-THEORY; AGENCY COSTS; NET WORTH; INFLATION; PRICES; RULES AB In the aftermath of the financial crisis, it has been argued that a guideline for the design of the future policy framework should be to take the 'a' out of 'asymmetry' in the way monetary policy deals with asset price movements. Recent empirical evidence has suggested that the Federal Reserve may have followed an asymmetric policy towards the stock market in the pre-crisis period. According to these findings, monetary policy in the US before the crisis involved a reaction to stock price drops, but no reaction to increasing stock prices. The present paper studies the effects of such a policy in a DSGE model. The asymmetric policy rule introduces an important non-linearity into the model: Booms in output and inflation tend to be amplified, while recessions are dampened. Moreover, such a policy gives rise to expectations-driven booms in asset prices. We further investigate to what extent an asymmetric stock price reaction could be motivated by the desire of policymakers to correct for inherent asymmetries in the way stock price movements affect the macroeconomy. (C) 2013 Elsevier Inc. All rights reserved. C1 Danmarlcs Nationalbank, Econ Res, DK-1093 Copenhagen K, Denmark. RP Ravn, SH (autor correspondente), Danmarlcs Nationalbank, Econ Res, Havnegade 5, DK-1093 Copenhagen K, Denmark. 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PD MAR PY 2014 VL 39 BP 24 EP 41 DI 10.1016/j.jmacro.2013.11.002 PN A PG 18 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA AI3PV UT WOS:000336775300002 OA Green Submitted, Green Published DA 2022-08-04 ER PT J AU Takahashi, H Terano, T AF Takahashi, H Terano, T TI Agent-based approach to investors' behavior and asset price fluctuation in financial markets SO JASSS-THE JOURNAL OF ARTIFICIAL SOCIETIES AND SOCIAL SIMULATION LA English DT Article DE agent-based approach; behavioral finance; financial engineering; natural selection; self-organizing systems and emergent organization; society dynamics ID PROSPECT-THEORY; RISK; PSYCHOLOGY AB In this paper, we use Agent-Based Approach to analyze how asset prices are affected by investors and investment systems that are based on Behavioral Finance. We build a virtual financial market that contains two types of investors: fundamentalists and non-fundamentalists. As a result of intensive experiments in the market, we find that (1) the traded price agrees with the fundamental value and the fundamentalists survive according to the principle of natural selection in the case that the market contains the same number of fundamentalists and trend predictors (investors who make trend prediction), (2) the traded price largely deviates from the fundamental value and the non-fundamentalists frequently obtain excess returns and therefore the fundamentalists are eliminated according to the principle of natural selection in the case that the proportion of trend predictors is extremely high or in the case that the investment ratio of the risk asset is restricted, and (3) the traded price largely deviates from the fundamental value in the case that the non-fundamentalists estimate the losses excessively, as pointed in Prospect Theory. These results indicate that the non-fundamentalists affect the traded prices and obtain excess returns also in real markets. C1 Mitsui Asset Trust & Banking, Quantitat Investment Dept, Minato Ku, Tokyo 1058574, Japan. Univ Tsukuba, Bunkyo Ku, Tokyo 1120012, Japan. RP Takahashi, H (autor correspondente), Mitsui Asset Trust & Banking, Quantitat Investment Dept, Minato Ku, 3-23-1 Shiba, Tokyo 1058574, Japan. EM hiroshi.1.takahashi@mitsuitrust-fg.co.jp; terano@gssm.otsuka.tsukuba.ac.jp CR Axelrod Robert M., 1997, COMPLEXITY COOPERATI AXTELL R, 2000, J FINANC ECON, V49, P307 Barberis N, 2001, Q J ECON, V116, P1, DOI 10.1162/003355301556310 BARBERIS N, IN PRESS J FINANCIAL BAZERMAN MH, 1998, JUDGMENT MANAGERIAL Berger, 1985, STAT DECISION THEORY BLACK R, 1992, FINANCIAL ANAL J SEP, P28 Chiarella C., 1992, Annals of Operations Research, V37, P101, DOI 10.1007/BF02071051 Damasio A. R, 2006, DESCARTESERROR EMOTI DELONG JB, 1990, J POLIT ECON, V98, P703, DOI 10.1086/261703 DELONG JB, 1990, J FINANC, V45, P375 Epstein J. 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A., 1996, SCI ARTIFICIAL Simon HA, 1955, Q J ECON, V69, P99, DOI 10.2307/1884852 TAKAHASHI H, 2002, 8 INT C SOC COMP EC TVERSKY A, 1981, SCIENCE, V211, P453, DOI 10.1126/science.7455683 Tversky A., 1982, JUDGMENT UNCERTAINTY Tversky A., 2000, CHOICES VALUES FRAME Urbach P, 1993, SCI REASONING Wolfram S., 1994, CELLULAR AUTOMATA CO [No title captured] NR 44 TC 12 Z9 12 U1 0 U2 2 PU J A S S S PI GUILDFORD PA UNIV SURREY, DEPT SOCIOLOGY, GUILDFORD GU2 7XH, SURREY, ENGLAND SN 1460-7425 J9 JASSS-J ARTIF SOC S JI JASSS PD JUN PY 2003 VL 6 IS 3 PG 45 WC Social Sciences, Interdisciplinary WE Social Science Citation Index (SSCI) SC Social Sciences - Other Topics GA 702DM UT WOS:000184205800003 DA 2022-08-04 ER PT J AU An, L Argyle, B AF An, Li Argyle, Bronson TI Overselling winners and losers: How mutual fund managers' trading behavior affects asset prices* SO JOURNAL OF FINANCIAL MARKETS LA English DT Article DE Mutual funds; Disposition effect; Price pressure; Cross-sectional return predictability ID PROSPECT-THEORY; CROSS-SECTION; DISPOSITION; RETURNS; INVESTORS; VOLATILITY; RELUCTANT; MOMENTUM; REALIZE; IMPACT AB We link a seemingly biased trading behavior to equilibrium asset prices. U.S. equity mutual fund managers tend to sell both their big winners and big losers. This selling pressure pushes down current prices and leads to higher future returns; aggregating across funds, we find that securities for which investors have large unrealized gains and losses outperform in the subsequent month. Funds with larger turnover, shorter holding period, and higher expense ratios, are significantly more likely to manifest this trading pattern, and unrealized profits from such funds have stronger return predictability. This cross-sectional return predictability is difficult to reconcile with alternative explanations. (c) 2020 Elsevier B.V. All rights reserved. C1 [An, Li] Tsinghua Univ, PBC Sch Finance, Beijing, Peoples R China. [Argyle, Bronson] Brigham Young Univ, Provo, UT 84602 USA. RP An, L (autor correspondente), Tsinghua Univ, PBC Sch Finance, Beijing, Peoples R China. EM anl@pbcsf.tsinghua.edu.cn; bsa@byu.edu FU National Natural Science Foundation of China [71903106, 71790605] FX We thank Nick Barberis, Kent Daniel, Juhani Linnainmaa, Dong Lou, Paul Tetlock, and seminar participants at Brigham Young University, PBC School of Finance at Tsinghua University, GSM at Peking University, HKUST, 2015 Red Rock Finance Conference, and 2015 EFMA Conference for helpful comments and discussions. We also thank Lauren Cohen and Clemens Sialm for sharing data. An acknowledges financial support from the National Natural Science Foundation of China [Grants 71903106 and 71790605]. 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PD SEP PY 2021 VL 55 AR 100580 DI 10.1016/j.finmar.2020.100580 EA AUG 2021 PG 24 WC Business, Finance WE Social Science Citation Index (SSCI) SC Business & Economics GA UJ3NN UT WOS:000691196400004 DA 2022-08-04 ER PT J AU Cao, SN Deng, J Li, HG AF Cao, Shi-Nan Deng, Jing Li, Honggang TI Prospect theory and risk appetite: an application to traders' strategies in the financial market SO JOURNAL OF ECONOMIC INTERACTION AND COORDINATION LA English DT Article; Proceedings Paper CT 7th International Conference on Applications of Physics in Financial Analysis CY MAR, 2009 CL Tokyo, JAPAN SP Tokyo Inst Technol, Hitotsubashi Univ DE Volatility clustering; Fat tail; Prospect theory; Risk appetite; Market efficiency ID TRADING VOLUME; ORDER IMBALANCE; PRICE DYNAMICS; VOLATILITY; TRANSACTIONS; RETURNS; MODEL; LONG AB According to behavioral finance theories, in this article we develop a dynamic model with heterogeneous traders, where the asset price is determined by the interaction among four different groups of agents: trend reversers, trend followers, risk averters and risk seekers. The main purpose of the study is centered on modeling and testing how the market efficiency changes along with the changes of agent's behavior preference without exogenous influence. Combining with the assumption of risk appetite and prospect theory, focusing on analyzing the rules for selecting strategies, we establish a more reliable and comprehensive dynamic mechanism. In particular, our study suggests that diversified trading strategies will help to realize market efficiency. C1 [Cao, Shi-Nan] Renmin Univ China, Sch Finance, Beijing 100872, Peoples R China. [Deng, Jing; Li, Honggang] Beijing Normal Univ, Sch Management, Dept Syst Sci, Beijing 100875, Peoples R China. RP Cao, SN (autor correspondente), Renmin Univ China, Sch Finance, Beijing 100872, Peoples R China. 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Econ. Interact. Coord. PD DEC PY 2010 VL 5 IS 2 BP 249 EP 259 DI 10.1007/s11403-010-0073-7 PG 11 WC Economics WE Social Science Citation Index (SSCI); Conference Proceedings Citation Index- Social Science & Humanities (CPCI-SSH) SC Business & Economics GA 687LT UT WOS:000284780700010 DA 2022-08-04 ER PT J AU Blau, BM AF Blau, Benjamin M. TI Skewness preferences, asset prices and investor sentiment SO APPLIED ECONOMICS LA English DT Article DE Skewness; investor sentiment; lottery preferences; asset pricing; prospect theory ID CROSS-SECTION; EXPECTED RETURNS; STOCK-MARKET; LOTTERIES; RISK; EQUILIBRIUM; MOOD AB Prior research has found that investors have strong preferences for stocks with positive skewness. These preferences have been shown to lead to price premiums and subsequent underperformance. This study extends this growing body of literature by testing whether the underperformance of stocks with positive skewness is driven by periods of high investor sentiment. The motivation for these tests is based on a broad literature in Psychology that an individual's mood can directly affect the individual's subjective probability assessments. In the framework of our tests, more optimism among investors may strengthen investors' skewness preferences. The empirical results in this study support this idea as the underperformance of positively skewed stocks is shown to be primarily driven by periods of high investor sentiment. C1 [Blau, Benjamin M.] Utah State Univ, Jon M Huntsman Sch Business, 3565 Old Main Hill, Logan, UT 84322 USA. RP Blau, BM (autor correspondente), Utah State Univ, Jon M Huntsman Sch Business, 3565 Old Main Hill, Logan, UT 84322 USA. 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Econ. PY 2017 VL 49 IS 8 BP 812 EP 822 DI 10.1080/00036846.2016.1205727 PG 11 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA EE1FW UT WOS:000389327400006 DA 2022-08-04 ER PT J AU Tuyon, J Ahmad, Z AF Tuyon, Jasman Ahmad, Zamri TI Psychoanalysis of Investor Irrationality and Dynamism in Stock Market SO JOURNAL OF INTERDISCIPLINARY ECONOMICS LA English DT Article DE Behavioural finance; behavioural risks; bounded rationality; psychoanalysis; interdisciplinary theories ID DECISION-MAKING; PROSPECT-THEORY; VOLATILITY EVIDENCE; FINANCIAL-MARKETS; SENTIMENT; PSYCHOLOGY; EMOTIONS; BIASES; PERFORMANCE; RETURNS AB This article provides an alternative theoretical framework to explain investors' irrational behaviours in finance theories (mainly asset pricing) based on psychoanalysis approach. This is an approach used by psychoanalysts and psychiatrists to investigate human minds. The investigation is facilitated by interdisciplinary theories, namely (a) bounded rationality theory which differentiates intuition and reasoning, (b) prospect theory which explains framing and valuation and (c) theory of mind which divides behavioural risks into cognitive heuristics and affective biases. These theories collectively explain the origin of irrational behaviours. Additionally, (d) the ABC (Activating-Beliefs-Consequences) model is also used to interpret the causes and effects of irrational behaviours on investors and market behaviour. Last theory, (e) the dual system model of preference is used to conceptualize the bounded human mind that contains both rational and irrational elements. The proposed theoretical framework provides the theoretical foundation of investors' irrational origin, forces, causes as well as their systematic effects on investors, asset prices and stock market behaviours dynamism. 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PD JAN PY 2018 VL 30 IS 1 BP 1 EP 31 DI 10.1177/0260107917697504 PG 31 WC Economics WE Emerging Sources Citation Index (ESCI) SC Business & Economics GA GT1ER UT WOS:000444203100001 DA 2022-08-04 ER PT J AU De Giorgi, E Hens, T Riegerf, MO AF De Giorgi, Enrico Hens, Thorsten Riegerf, Marc Oliver TI Financial market equilibria with cumulative prospect theory SO JOURNAL OF MATHEMATICAL ECONOMICS LA English DT Article DE Cumulative prospect theory; Prospect theory; General equilibrium model; Non-convex preferences; Continuum of agents ID COMPETITIVE EQUILIBRIA; ASSET PRICES; EXISTENCE; CONTINUUM; TRADERS; RISK; SELECTION; ARBITRAGE AB The paper first shows that financial market equilibria need not to exist if agents possess cumulative prospect theory preferences with piecewise-power value functions. This is due to the boundary behavior of the cumulative prospect theory value function, which might cause an infinite short-selling problem. But even when a non-negativity constraint on final wealth is added, non-existence can occur due to the non-convexity of CPT preferences, which might cause discontinuities in the agents' demand functions. This latter observation also implies that concavification arguments which has been used in portfolio allocation problems with CPT preferences do not apply to our general equilibrium setting with finite many agents. Existence of equilibria is established when non-negativity constraints on final wealth are imposed and there is a continuum of agents in the market. However, if the original prospect theory is used instead of cumulative prospect theory, then other discontinuity problems can cause non-existence of market equilibria even in this case. (C) 2010 Elsevier B.V. All rights reserved. C1 [Hens, Thorsten] Univ Zurich, Swiss Banking Inst, CH-8032 Zurich, Switzerland. [De Giorgi, Enrico] Univ St Gallen, Grp Math & Stat, CH-9000 St Gallen, Switzerland. [De Giorgi, Enrico] Univ Lugano, Swiss Finance Inst, CH-6900 Lugano, Switzerland. [Hens, Thorsten] Norwegian Sch Econ & Business Adm, N-5045 Bergen, Norway. [Riegerf, Marc Oliver] Univ Trier, Dept 4, D-54286 Trier, Germany. RP Hens, T (autor correspondente), Univ Zurich, Swiss Banking Inst, Plattenstr 32, CH-8032 Zurich, Switzerland. EM enrico.degiorgi@unisg.ch; thens@isb.unizh.ch; rieger@isb.unizh.ch RI De+Giorgi, Enrico/AAQ-5269-2020 OI Hens, Thorsten/0000-0002-0266-1561; De Giorgi, Enrico/0000-0001-8017-9618 FU National Center of Competence in Research "Financial Valuation and Risk Management" (NCCR-FINRISK); Foundation for Research and Development of the University of Lugano FX Financial support from the National Center of Competence in Research "Financial Valuation and Risk Management" (NCCR-FINRISK) and from the Foundation for Research and Development of the University of Lugano is gratefully acknowledged. We are grateful to seminar participants at Oxford University and the University of St. Gallen for their helpful comments. 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E., 2003, B ECON RES, V55, P357 SHARPE WF, 1964, J FINANC, V19, P425, DOI 10.2307/2977928 Taqqu MS, 1998, PRACTICAL GUIDE TO HEAVY TAILS, P177 TVERSKY A, 1992, J RISK UNCERTAINTY, V5, P297, DOI 10.1007/BF00122574 NR 17 TC 0 Z9 0 U1 0 U2 4 PU JOINT CONFERENCE INFORMATION SCIENCES PI DURHAM PA 2709 MONTGOMERY ST, DURHAM, NC 27705 USA PY 2005 BP 859 EP 862 PG 4 WC Computer Science, Artificial Intelligence; Computer Science, Information Systems; Computer Science, Interdisciplinary Applications WE Conference Proceedings Citation Index - Science (CPCI-S) SC Computer Science GA BDI96 UT WOS:000233670801074 DA 2022-08-04 ER PT J AU Berkelaar, AB Kouwenberg, R Post, T AF Berkelaar, AB Kouwenberg, R Post, T TI Optimal portfolio choice under loss aversion SO REVIEW OF ECONOMICS AND STATISTICS LA English DT Article ID EQUITY PREMIUM PUZZLE; PROSPECT-THEORY; ASSET PRICES; RISK-AVERSION; MODEL; CONSUMPTION; INSURANCE; POLICIES AB This paper analyzes the optimal investment strategy for loss-averse investors, assuming a complete market and general Ito processes for the asset prices. The loss-averse investor follows a partial portfolio insurance strategy. When the investor's planning horizon is short (less than 5 years), he or she considerably reduces the initial portfolio weight of stocks compared to an investor with smooth power utility. The empirical section of the paper estimates the level of loss aversion implied by historical U.S. stock market data, using a representative agent model. We find that loss aversion and risk aversion cannot be disentangled empirically. C1 World Bank, Washington, DC 20433 USA. Asian Inst Technol, Bangkok 10501, Thailand. Erasmus Univ, NL-3000 DR Rotterdam, Netherlands. RP Berkelaar, AB (autor correspondente), World Bank, 1818 H St NW, Washington, DC 20433 USA. RI Kouwenberg, Roy/M-6873-2014; Kouwenberg, Roy/AAT-2635-2020 OI Kouwenberg, Roy/0000-0001-9312-4587; Kouwenberg, Roy/0000-0001-9312-4587 CR Ait-Sahalia Y, 2001, J FINANC, V56, P1297, DOI 10.1111/0022-1082.00369 ANG A, 2000, W7783 NBER Avriel M., 1988, GEN CONCAVITY Barberis N, 2001, Q J ECON, V116, P1, DOI 10.1162/003355301556310 Basak S, 1995, REV FINANC STUD, V8, P1059, DOI 10.1093/rfs/8.4.1059 Basak S, 2001, REV FINANC STUD, V14, P371, DOI 10.1093/rfs/14.2.371 BENARTZI S, 1995, Q J ECON, V110, P73, DOI 10.2307/2118511 Browne S, 1999, J PORTFOLIO MANAGE, V25, P76, DOI 10.3905/jpm.1999.319754 Carpenter JN, 2000, J FINANC, V55, P2311, DOI 10.1111/0022-1082.00288 COX JC, 1989, J ECON THEORY, V49, P33, DOI 10.1016/0022-0531(89)90067-7 EPSTEIN LG, 1990, J MONETARY ECON, V26, P387, DOI 10.1016/0304-3932(90)90004-N GOMES F, 2005, J BUS, V78, P4 GUL F, 1991, ECONOMETRICA, V59, P667, DOI 10.2307/2938223 Hansen LP, 1996, J BUS ECON STAT, V14, P262, DOI 10.2307/1392442 Jagannathan R, 1996, J FINANC, V51, P3, DOI 10.2307/2329301 KAHNEMAN D, 1979, ECONOMETRICA, V47, P263, DOI 10.2307/1914185 Karatzas I., 1998, METHODS MATH FINANCE LELAND HE, 1980, J FINANC, V35, P581, DOI 10.2307/2327419 Lettau M, 2001, J POLIT ECON, V109, P1238, DOI 10.1086/323282 MANKIW NG, 1991, J FINANC ECON, V29, P97, DOI 10.1016/0304-405X(91)90015-C MEHRA R, 1985, J MONETARY ECON, V15, P145, DOI 10.1016/0304-3932(85)90061-3 PLISKA SR, 1986, MATH OPER RES, V11, P371, DOI 10.1287/moor.11.2.371 SEGAL U, 1990, J ECON THEORY, V51, P111, DOI 10.1016/0022-0531(90)90053-M TVERSKY A, 1992, J RISK UNCERTAINTY, V5, P297, DOI 10.1007/BF00122574 TVERSKY A, 1991, Q J ECON, V106, P1039, DOI 10.2307/2937956 YAARI ME, 1987, ECONOMETRICA, V55, P95, DOI 10.2307/1911158 [No title captured] [No title captured] NR 28 TC 159 Z9 174 U1 3 U2 38 PU M I T PRESS PI CAMBRIDGE PA FIVE CAMBRIDGE CENTER, CAMBRIDGE, MA 02142 USA SN 0034-6535 J9 REV ECON STAT JI Rev. Econ. Stat. PD NOV PY 2004 VL 86 IS 4 BP 973 EP 987 DI 10.1162/0034653043125167 PG 15 WC Economics; Social Sciences, Mathematical Methods WE Social Science Citation Index (SSCI) SC Business & Economics; Mathematical Methods In Social Sciences GA 883HT UT WOS:000226002900011 OA Green Submitted DA 2022-08-04 ER PT J AU Yao, J Li, D AF Yao, Jing Li, Duan TI Prospect theory and trading patterns SO JOURNAL OF BANKING & FINANCE LA English DT Article DE Prospect theory; Negative-feedback trading; Price elasticity of demand; Contrarian behavior; Disposition effect; Noise trading ID LOSS AVERSION; ASSET PRICES; EQUITY PREMIUM; STOCK RETURNS; BEHAVIOR; VOLATILITY; INVESTORS; EXPLANATION; UNCERTAINTY; MARKETS AB Reference dependence, loss aversion, and risk seeking for losses together comprise the preference-based component of prospect theory that sets its value function apart from the standard risk-aversion model. Using an elasticity analysis, we show that this distinctive preference component serves to underpin negative-feedback trading propensities, but cannot manifest itself in behavior directly or holistically at the individual-choice level. We then propose and demonstrate that the market interaction between prospect-theory investors and regular CRRA investors allows this preference component to dominate in equilibrium behavior and hence helps to reestablish the intuitive link between prospect-theory preferences and negative-feedback trading patterns. In the model, the interaction also reconciles the contrarian behavior of prospect-theory investors with asymmetric volatility and short-term return reversal. The results suggest that prospect-theory preferences can lead investors to behave endogenously as contrarian noise traders in the market interaction process. (C) 2013 Elsevier B.V. All rights reserved. C1 [Yao, Jing] Fudan Univ, Inst Financial Studies, Sch Econ, Shanghai 200433, Peoples R China. [Li, Duan] Chinese Univ Hong Kong, Dept Syst Engn & Engn Management, Shatin, Hong Kong, Peoples R China. RP Yao, J (autor correspondente), Fudan Univ, Inst Financial Studies, Sch Econ, Shanghai 200433, Peoples R China. EM yaojing@fudan.edu.cn; dli@se.cuhk.edu.hk RI Yao, Jing/T-5499-2019; Li, Duan/E-7985-2011 OI Li, Duan/0000-0001-9786-6238; Yao, Jing/0000-0002-3965-682X CR [Anonymous], 1976, P 1976 M BUSINESS EC Avramov D, 2006, REV FINANC STUD, V19, P1241, DOI 10.1093/rfs/hhj027 Barber B. 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Bank Financ. PD AUG PY 2013 VL 37 IS 8 BP 2793 EP 2805 DI 10.1016/j.jbankfin.2013.04.001 PG 13 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 171ZO UT WOS:000320969600010 DA 2022-08-04 ER PT J AU Abinzano, I Muga, L Santamaria, R AF Abinzano, Isabel Muga, Luis Santamaria, Rafael TI Behavioral Biases Never Walk Alone: An Empirical Analysis of the Effect of Overconfidence on Probabilities SO JOURNAL OF SPORTS ECONOMICS LA English DT Article DE overconfidence; betting exchanges; anomalies; behavioral finance; arbitrage ID MARKET-EFFICIENCY; PROSPECT-THEORY; ARBITRAGE; RISK AB This article presents evidence of the impact of overconfidence bias in asset prices drawn from a study based on data from tennis betting exchanges. A series of betting strategies in tournaments with a clear-cut favorite are shown to yield significant economic returns. The impact of overconfidence bias on betting odds increases with trading volume, media coverage, and levels of disagreement between overconfident and cumulative prospect theory bettors. Just as in traditional financial markets, arbitrage limits are shown to be a necessary condition for the impact of behavioral biases on prices. C1 [Abinzano, Isabel; Muga, Luis; Santamaria, Rafael] Univ Publ Navarra, Financial Econ, Pamplona, Spain. RP Muga, L (autor correspondente), Univ Publ Navarra, Edificio Madronos,Campus Arrosadia, Pamplona 31006, Spain. EM luis.muga@unavarra.es RI Muga, Luis/H-3523-2015; Abinzano, Isabel/H-1992-2015; Santamaria, Rafael/G-5755-2015 OI Muga, Luis/0000-0003-0374-0226; Santamaria, Rafael/0000-0001-7656-6412; Abinzano, Isabel/0000-0002-4658-8677 FU Spanish Ministry of Economy and Competitiveness [ECO2012-35946-C02-01] FX The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This paper has received financial support from the Spanish Ministry of Economy and Competitiveness (ECO2012-35946-C02-01). CR Andrikogiannopoulou A., 2013, 1353 SWISS FIN I RES Arkes J., 2011, J PREDICTION MARKETS, V5, P31 Ashiya M, 2015, J SPORT ECON, V16, P322, DOI 10.1177/1527002513493630 Avery C, 1999, J BUS, V72, P493, DOI 10.1086/209625 Berg J. 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C., 2004, WORKING PAPER TVERSKY A, 1992, J RISK UNCERTAINTY, V5, P297, DOI 10.1007/BF00122574 Vergin R.C., 2001, APPL FINANCIAL EC, V11, P497, DOI [10.1080/096031001752236780, DOI 10.1080/096031001752236780] Vlastakis N, 2009, J FORECASTING, V28, P426, DOI 10.1002/for.1085 WHITE H, 1980, ECONOMETRICA, V48, P817, DOI 10.2307/1912934 Williams J., 2010, MOMENTUM SPORTS BETT NR 32 TC 7 Z9 7 U1 2 U2 28 PU SAGE PUBLICATIONS INC PI THOUSAND OAKS PA 2455 TELLER RD, THOUSAND OAKS, CA 91320 USA SN 1527-0025 EI 1552-7794 J9 J SPORT ECON JI J. Sport. Econ. PD FEB PY 2017 VL 18 IS 2 BP 99 EP 125 DI 10.1177/1527002514560575 PG 27 WC Economics; Hospitality, Leisure, Sport & Tourism WE Social Science Citation Index (SSCI) SC Business & Economics; Social Sciences - Other Topics GA EP2CB UT WOS:000397189500001 OA Green Accepted DA 2022-08-04 ER PT J AU Routledge, BR Zin, SE AF Routledge, Bryan R. Zin, Stanley E. TI Generalized Disappointment Aversion and Asset Prices SO JOURNAL OF FINANCE LA English DT Article ID EQUITY PREMIUM; RISK-AVERSION; PROSPECT-THEORY; LONG-RUN; CONSUMPTION; PREFERENCES; UNCERTAINTY; RESOLUTION AB We characterize generalized disappointment aversion (GDA) risk preferences that can overweight lower-tail outcomes relative to expected utility. We show in an endowment economy that recursive utility with GDA risk preferences generates effective risk aversion that is countercyclical. This feature comes from endogenous variation in the probability of disappointment in the representative agent's intertemporal consumption-saving problem that underlies the asset pricing model. The variation in effective risk aversion produces a large equity premium and a risk-free rate that is procyclical and has low volatility in an economy with a simple autoregressive endowment-growth process. C1 [Routledge, Bryan R.] Carnegie Mellon Univ, Tepper Sch Business, Pittsburgh, PA 15213 USA. [Zin, Stanley E.] NYU, Stern Sch Business, New York, NY 10003 USA. [Zin, Stanley E.] NBER, Cambridge, MA 02138 USA. RP Routledge, BR (autor correspondente), Carnegie Mellon Univ, Tepper Sch Business, Pittsburgh, PA 15213 USA. CR Ang A, 2005, J FINANC ECON, V76, P471, DOI 10.1016/j.jfineco.2004.03.009 [Anonymous], 1999, HDB MACROECONOMICS Backus D. 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PD AUG PY 2010 VL 65 IS 4 BP 1303 EP 1332 DI 10.1111/j.1540-6261.2010.01571.x PG 30 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 623KB UT WOS:000279737300003 OA Green Published DA 2022-08-04 ER PT J AU Zhang, WL Semmler, W AF Zhang, Wenlang Semmler, Willi TI Prospect theory for stock markets: Empirical evidence with time-series data SO JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION LA English DT Article DE Prospect theory; Loss aversion; State-space model; House-money effect; Break-even effect AB Based on the loss aversion model of asset pricing, this paper explores empirical evidence on the prospect theory for stock markets with time-series data. The analysis, using a state-space model, shows that previous gains and losses may have asymmetric effects on investment behavior, pointing to the possibility of break-even effects ignored by asset-pricing models using prospect theory. (C) 2009 Elsevier B.V. All rights reserved. C1 [Zhang, Wenlang] Hong Kong Monetary Author, Res Dept, Hong Kong, Hong Kong, Peoples R China. [Semmler, Willi] New Sch Univ, Dept Econ, Grad Fac, New York, NY 10003 USA. RP Zhang, WL (autor correspondente), Hong Kong Monetary Author, Res Dept, 55th Floor,2 Int Finance Ctr,8 Finance St Cent, Hong Kong, Hong Kong, Peoples R China. EM wzhang@hkma.gov.hk; semmlerw@newschool.edu CR Barberis N, 2001, Q J ECON, V116, P1, DOI 10.1162/003355301556310 Boldrin M, 2001, AM ECON REV, V91, P149, DOI 10.1257/aer.91.1.149 BROCK WA, 1972, J ECON THEORY, V4, P479, DOI 10.1016/0022-0531(72)90135-4 Campbell J.Y., 1997, ECONOMETRICS FINANCI, P9 Grune L, 2008, J ECON DYN CONTROL, V32, P3253, DOI 10.1016/j.jedc.2008.01.002 Grune L., 2007, Computational Economics, V29, P233, DOI 10.1007/s10614-006-9063-1 GUST C, 2009, FED RES C WASH DC FI HANSEN LP, 1982, ECONOMETRICA, V50, P1029, DOI 10.2307/1912775 Jermann UJ, 1998, J MONETARY ECON, V41, P257, DOI 10.1016/S0304-3932(97)00078-0 KAHNEMAN D, 1979, ECONOMETRICA, V47, P263, DOI 10.2307/1914185 Kim C.-J., 1999, STATE SPACE MODELS R Lettau M, 2002, MACROECON DYN, V6, P242, DOI 10.1017/S1365100502031036 Lettau M, 2000, REV ECON DYNAM, V3, P79, DOI 10.1006/redy.1998.0035 THALER RH, 1990, MANAGE SCI, V36, P643, DOI 10.1287/mnsc.36.6.643 UHLIG H, 1999, TOOLKIT ANAL N UNPUB NR 15 TC 30 Z9 34 U1 2 U2 16 PU ELSEVIER PI AMSTERDAM PA RADARWEG 29, 1043 NX AMSTERDAM, NETHERLANDS SN 0167-2681 EI 1879-1751 J9 J ECON BEHAV ORGAN JI J. Econ. Behav. Organ. PD DEC PY 2009 VL 72 IS 3 BP 835 EP 849 DI 10.1016/j.jebo.2009.08.003 PG 15 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 567ZR UT WOS:000275490200004 DA 2022-08-04 ER PT J AU Bonomo, M Garcia, R Meddahi, N Tedongap, R AF Bonomo, Marco Garcia, Rene Meddahi, Nour Tedongap, Romeo TI Generalized Disappointment Aversion, Long-run Volatility Risk, and Asset Prices SO REVIEW OF FINANCIAL STUDIES LA English DT Article ID EQUITY PREMIUM; INTERTEMPORAL SUBSTITUTION; PROSPECT-THEORY; PRICING MODEL; TIME-SERIES; CONSUMPTION; EXPECTATIONS; RESOLUTION AB We propose an asset pricing model with generalized disappointment aversion preferences and long-run volatility risk. With Markov switching fundamentals, we derive closed-form solutions for all returns moments and predictability regressions. The model produces first and second moments of price-dividend ratios and asset returns as well as return predictability patterns in line with the data. Compared to Bansal and Yaron (2004), we generate (i) more predictability of excess returns by price-dividend ratios; (ii) less predictability of consumption growth rates by price-dividend ratios. Our results do not depend on a value of the elasticity of intertemporal substitution greater than one. C1 [Garcia, Rene] Edhec Business Sch, F-06202 Nice 3, France. [Meddahi, Nour] IDEI, GREMAQ, Toulouse Sch Econ, Toulouse, France. [Tedongap, Romeo] Stockholm Sch Econ, Stockholm, Sweden. RP Garcia, R (autor correspondente), Edhec Business Sch, 393 Promenade Anglais,BP 3116, F-06202 Nice 3, France. 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Financ. Stud. PD JAN PY 2011 VL 24 IS 1 BP 82 EP 122 DI 10.1093/rfs/hhq116 PG 41 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 696DC UT WOS:000285421100003 OA Green Submitted DA 2022-08-04 ER PT J AU Liu, QW Li, Y Wang, SY AF Liu, Qingwei Li, Yi Wang, Shouyang TI From hedging to speculation - An explanation based on prospect theory SO JOURNAL OF SYSTEMS SCIENCE & COMPLEXITY LA English DT Article DE hedging; loss aversion; prospect theory; reference point ID EVALUATION PERIODS; PORTFOLIO CHOICE; LOSS AVERSION; ASSET PRICES; COMMITMENT; RISK AB This paper studies the impact of the reference point on a hedger's decision based upon prospect theory and experimental evidence on how prior outcomes affect risky choice. The authors show that in the futures market; a hedger who does not adjust his reference point timely would increase his positions continually as his accumulated losses increase, and finally become a speculator. Numerical simulation results under the normal distribution also lend support to the results. The model can help explain why the hedging behavior of firms turns into speculative activities and can offer some new insights into hedging behavior. C1 [Liu, Qingwei; Wang, Shouyang] Chinese Acad Sci, Acad Math & Syst Sci, Inst Syst Sci, Beijing 100190, Peoples R China. [Liu, Qingwei; Li, Yi] Chinese Acad Sci, Grad Univ, Sch Management, Beijing 100190, Peoples R China. RP Liu, QW (autor correspondente), Chinese Acad Sci, Acad Math & Syst Sci, Inst Syst Sci, Beijing 100190, Peoples R China. EM sywang@iss.ac.cn OI Wang, Shouyang/0000-0001-5773-998X FU National Natural Science Foundation [70221001] FX This research is supported by the National Natural Science Foundation under Grant No. 70221001. 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Syst. Sci. Complex. PD SEP PY 2008 VL 21 IS 3 BP 394 EP 405 DI 10.1007/s11424-008-9121-y PG 12 WC Mathematics, Interdisciplinary Applications WE Science Citation Index Expanded (SCI-EXPANDED) SC Mathematics GA 346WZ UT WOS:000259101600006 DA 2022-08-04 ER PT J AU Hua, QL Xiao, ZJ Zhou, HT AF Hua, Qiuling Xiao, Zhijie Zhou, Hongtao TI Right tail information and asset pricing SO ECONOMETRIC REVIEWS LA English DT Article DE Asset pricing; quantile; right tail mean; right tail variance; tail information ID PROSPECT-THEORY; PORTFOLIO SELECTION; RISK; SKEWNESS; EQUILIBRIUM; PREFERENCE; PRICES; RETURN; STOCKS AB The right tail of the distribution of financial variables provides important information to investors and decision-makers. In this paper, we study the role of the right tail distributional information in finance. First, we propose semiparametric estimators for the right tail mean (RTM) and right tail variance (RTV). The proposed estimators use parsimonious parametric models to capture the dynamics of the data, and also allow for nonparametric flexibility in the distribution. These estimators can be estimated at the rate of root-T and are asymptotically normal. We then conduct a comparative study on the dynamics and empirical feature of the RTM and RTV in two international equity markets: The US and The Chinese stock markets. Third, we study the effect of right tail measures in the cross-sectional pricing of stock returns. Our empirical investigation indicates that the right tail information plays a significant role in explaining the cross-section pricing of stock returns. In addition, the RTV and left tail variance (LTV) have opposite impacts on asset prices. Finally, we use simulation based analysis to examine the impact of RTM on the optimal investment strategy. Our results have important implications for portfolio management in financial market. C1 [Hua, Qiuling] Jilin Univ, Sch Econ, Res Ctr China Publ Sect Econ, Changchun, Peoples R China. [Xiao, Zhijie] Boston Coll, Dept Econ, Chestnut Hill, MA 02167 USA. [Zhou, Hongtao] Dongbei Univ Finance & Econ, Sch Econ, Ctr Econometr Anal & Forecasting, 217 Jianshan Steet, Dalian 116025, Peoples R China. RP Zhou, HT (autor correspondente), Dongbei Univ Finance & Econ, Sch Econ, Ctr Econometr Anal & Forecasting, 217 Jianshan Steet, Dalian 116025, Peoples R China. EM hongtao.zhou@dufe.edu.cn FU National Natural Science Foundation of China [11901233]; Empirical Research of CAPM Between China and Japan (Jilin University) [2019XXJD14] FX This material is financially supported by the National Natural Science Foundation of China (Grant No. 11901233) and the Empirical Research of CAPM Between China and Japan (Grant No. 2019XXJD14, Jilin University). 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PD SEP 14 PY 2021 VL 40 IS 8 SI SI BP 728 EP 749 DI 10.1080/07474938.2021.1889179 PG 22 WC Economics; Mathematics, Interdisciplinary Applications; Social Sciences, Mathematical Methods; Statistics & Probability WE Science Citation Index Expanded (SCI-EXPANDED); Social Science Citation Index (SSCI) SC Business & Economics; Mathematics; Mathematical Methods In Social Sciences GA TV3CI UT WOS:000681600900002 DA 2022-08-04 ER PT J AU Jin, HQ Zhou, XY AF Jin, Hanqing Zhou, Xun Yu TI Behavioral portfolio selection in continuous time SO MATHEMATICAL FINANCE LA English DT Article DE portfolio selection; continuous time; cumulative prospect theory; behavioral criterion; ill-posedness; S-shaped function; probability distortion; Choquet integral ID PROSPECT-THEORY; EQUITY PREMIUM; CHOICE; RISK AB This paper formulates and studies a general continuous-time behavioral portfolio selection model under Kahneman and Tversky's (cumulative) prospect theory, featuring S-shaped utility (value) functions and probability distortions. Unlike the conventional expected utility maximization model, such a behavioral model could be easily mis-formulated (a.k.a. ill-posed) if its different components do not coordinate well with each other. Certain classes of an ill-posed model are identified. A systematic approach, which is fundamentally different from the ones employed for the utility model, is developed to solve a well-posed model, assuming a complete market and general Ito processes for asset prices. The optimal terminal wealth positions, derived in fairly explicit forms, possess surprisingly simple structure reminiscent of a gambling policy betting on a good state of the world while accepting a fixed, known loss in case of a bad one. An example with a two-piece CRRA utility is presented to illustrate the general results obtained, and is solved completely for all admissible parameters. The effect of the behavioral criterion on the risky allocations is finally discussed. 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Financ. PD JUL PY 2008 VL 18 IS 3 BP 385 EP 426 DI 10.1111/j.1467-9965.2008.00339.x PG 42 WC Business, Finance; Economics; Mathematics, Interdisciplinary Applications; Social Sciences, Mathematical Methods WE Science Citation Index Expanded (SCI-EXPANDED); Social Science Citation Index (SSCI) SC Business & Economics; Mathematics; Mathematical Methods In Social Sciences GA 312RE UT WOS:000256687700002 OA Green Submitted DA 2022-08-04 ER PT J AU Meng, JJ Weng, X AF Meng, Juanjuan Weng, Xi TI Can Prospect Theory Explain the Disposition Effect? A New Perspective on Reference Points SO MANAGEMENT SCIENCE LA English DT Article DE disposition effect; prospect theory; loss aversion; reference point; expectations ID REFERENCE-DEPENDENT PREFERENCES; ASSET PRICES; DISAPPOINTMENT AVERSION; DECISION-MAKING; RISK; EXPECTATIONS; UNCERTAINTY; EXPLANATION; CONSUMPTION; EXPERIENCE AB There has been recent debate about whether prospect theory can explain the disposition effect. Using both theory and simulation, this paper shows that prospect theory often predicts the disposition effect when lagged expected final wealth is the reference point under the principle of preferred personal equilibrium, regardless of whether the reference point is updated or not. When initial wealth is the reference point, however, there is often no disposition effect. Models that use a reference point with no lag under the principle of preferred personal equilibrium or that determine the reference point using the principle of disappointment aversion cannot explain why the investor bought a stock in the first place. Reference point adjustment weakens the disposition effect, leads to more aggressive initial stock purchase strategies, and predicts history dependence in stock holding. C1 [Meng, Juanjuan; Weng, Xi] Peking Univ, Guanghua Sch Management, Beijing 100871, Peoples R China. RP Meng, JJ (autor correspondente), Peking Univ, Guanghua Sch Management, Beijing 100871, Peoples R China. EM jumeng@gsm.pku.edu.cn; wengxi125@gsm.pku.edu.cn RI Meng, Juanjuan/AAD-4413-2022 FU National Natural Science Foundation of China [71103003, 71471004, 71303014]; Beijing Higher Education Young Elite Teacher Project [YETP0040]; Guanghua Leadership Institute [12-02] FX J. Meng acknowledges financial support from the National Natural Science Foundation of China [Grants 71103003 and 71471004] and the Beijing Higher Education Young Elite Teacher Project [Grant YETP0040]. X. Weng acknowledges financial support from the National Natural Science Foundation of China [Grant 71303014] and the Guanghua Leadership Institute [Grant 12-02]. 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Econ. Rev. PD DEC PY 2008 VL 98 IS 5 BP 2066 EP 2100 DI 10.1257/aer.98.5.2066 PG 35 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 388NF UT WOS:000262025800013 OA Green Published DA 2022-08-04 ER PT J AU Bordalo, P Gennaioli, N Shleifer, A AF Bordalo, Pedro Gennaioli, Nicola Shleifer, Andrei TI Salience and Asset Prices SO AMERICAN ECONOMIC REVIEW LA English DT Article ID PROSPECT-THEORY C1 [Bordalo, Pedro] Univ London, Dept Econ, Egham TW20 0EX, Surrey, England. [Gennaioli, Nicola] Univ Bocconi, Dept Finance, Milan, Italy. [Shleifer, Andrei] Harvard Univ, Dept Econ, Littauer Ctr, Cambridge, MA 02138 USA. RP Bordalo, P (autor correspondente), Univ London, Dept Econ, Egham Hill, Egham TW20 0EX, Surrey, England. EM pedro.bordalo@rhul.ac.uk; nicola.gennaioli@unibocconi.it; shleifer@fas.harvard.edu CR Barberis N, 2001, Q J ECON, V116, P1, DOI 10.1162/003355301556310 Barberis N, 2008, AM ECON REV, V98, P2066, DOI 10.1257/aer.98.5.2066 Barberis NC, 2013, J ECON PERSPECT, V27, P173, DOI 10.1257/jep.27.1.173 Benartzi Shlomo, 2000, MYOPIC LOSS AVERSION Bordalo P., 2012, 17947 NAT BUR EC RES Bordalo P, 2012, Q J ECON, V127, P1243, DOI 10.1093/qje/qjs018 Boyer B, 2010, REV FINANC STUD, V23, P169, DOI 10.1093/rfs/hhp041 Campbell JY, 1988, REV FINANC STUD, V1, P195, DOI 10.1093/rfs/1.3.195 Campbell JY, 2008, J FINANC, V63, P2899, DOI 10.1111/j.1540-6261.2008.01416.x FAMA EF, 1992, J FINANC, V47, P427, DOI 10.2307/2329112 KAHNEMAN D, 1979, ECONOMETRICA, V47, P263, DOI 10.2307/1914185 LAKONISHOK J, 1994, J FINANC, V49, P1541, DOI 10.2307/2329262 LUCAS RE, 1978, ECONOMETRICA, V46, P1429, DOI 10.2307/1913837 MEHRA R, 1985, J MONETARY ECON, V15, P145, DOI 10.1016/0304-3932(85)90061-3 NR 14 TC 65 Z9 65 U1 2 U2 43 PU AMER ECONOMIC ASSOC PI NASHVILLE PA 2014 BROADWAY, STE 305, NASHVILLE, TN 37203 USA SN 0002-8282 EI 1944-7981 J9 AM ECON REV JI Am. Econ. Rev. PD MAY PY 2013 VL 103 IS 3 BP 623 EP 628 DI 10.1257/aer.103.3.623 PG 6 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 197UN UT WOS:000322877000107 OA Green Submitted, Green Published DA 2022-08-04 ER PT J AU Xia, JM Zhou, XY AF Xia, Jianming Zhou, Xun Yu TI ARROW-DEBREU EQUILIBRIA FOR RANK-DEPENDENT UTILITIES SO MATHEMATICAL FINANCE LA English DT Article DE rank-dependent utility; probability weighting; Arrow-Debreu equilibrium; state-price density ID LAW-INVARIANT UTILITIES; PROSPECT-THEORY; EXPECTED UTILITY; PORTFOLIO CHOICE; RISK; PROBABILITY; PREFERENCES; UNIQUENESS; EXISTENCE AB We provide conditions on a one-period-two-date pure exchange economy with rank-dependent utility agents under which Arrow-Debreu equilibria exist. When such an equilibrium exists, we show that the state-price density is a weighted marginal rate of intertemporal substitution of a representative agent, where the weight depends on the differential of the probability weighting function. Based on the result, we find that asset prices depend upon agents' subjective beliefs regarding overall consumption growth, and we offer a direction for possible resolution of the equity premium puzzle. C1 [Xia, Jianming] Chinese Acad Sci, Acad Math & Syst Sci, Beijing, Peoples R China. [Zhou, Xun Yu] E China Normal Univ, Shanghai, Peoples R China. [Zhou, Xun Yu] Chinese Univ Hong Kong, Hong Kong, Hong Kong, Peoples R China. [Zhou, Xun Yu] Univ Oxford, Oxford OX1 2JD, England. RP Xia, JM (autor correspondente), Chinese Acad Sci, Acad Math & Syst Sci, Key Lab Random Complex Struct & Data Sci, Beijing 100190, Peoples R China. EM xia@amss.ac.cn OI Xia, Jianming/0000-0001-6295-5425 FU NSFC (National Natural Science Foundation of China) [11231005]; NCMIS (National Center for Mathematics and Interdisciplinary Sciences), Chinese Academy of Sciences; GRF grant [CUHK419511]; University of Oxford; Oxford-Man Institute of Quantitative Finance; East China Normal University FX We are grateful for comments from the two anonymous referees, and seminar and conference participants at Oxford, ETH, Hong Kong University of Science and Technology, as well as at the Seventh Oxford-Princeton Workshop on Financial Mathematics and Stochastic Analysis in Princeton, the Seventh World Congress of Bachelier Finance Society in Sydney, the Ajou Workshop in Financial Economics and Mathematics, the St. Gallen Workshop in Quantitative Behavioural Finance, the First Asian Quantitative Finance Conference in Singapore, and the Twelfth Winter School on Mathematical Finance in Lunteren. We thank Rose Anne Dana, Xuedong He, Ulrich Horst, Hanqing Jin, Haim Levy, Mark Loewenstein, James Mirrlees, Hersh Shefrin, and Mete Soner for helpful discussions and comments on the paper. We are particularly indebted to Jose Scheinkman for suggesting possible implications of our results regarding the equity premium puzzle. Xia acknowledges financial supports from both NSFC (National Natural Science Foundation of China) under grant 11231005 and NCMIS (National Center for Mathematics and Interdisciplinary Sciences), Chinese Academy of Sciences, and Zhou acknowledges financial supports from GRF grant #CUHK419511, a start-up fund at the University of Oxford, a research fund from the Oxford-Man Institute of Quantitative Finance, and a research fund from East China Normal University. 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PD AUG PY 2017 VL 30 IS 8 BP 2851 EP 2889 DI 10.1093/rfs/hhx012 PG 39 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA FG5CD UT WOS:000410312600008 DA 2022-08-04 ER PT J AU Brown, A Yang, FY AF Brown, Alasdair Yang, Fuyu TI Salience and the Disposition Effect: Evidence from the Introduction of "Cash-Outs" in Betting Markets SO SOUTHERN ECONOMIC JOURNAL LA English DT Article ID PROSPECT-THEORY; LONG; PROBABILITY; RETURNS; UNDERREACTION; EXPERIENCE; EFFICIENCY; INVESTORS; RELUCTANT; MOMENTUM AB The disposition effect describes the tendency of investors to sell assets that have increased in value since purchase, and hold those that have not. We analyze the introduction of betting market "Cash-Outs," which provide a continual update-and therefore increase the salience-of bettors' paper profits/losses on each bet. We find that the introduction of Cash-Out increased the disposition effect in this market, as punters sold their profitable bets with greater frequency than before. We do not, however, find that the disposition effect has any impact on asset prices, either before or after this intervention. C1 [Brown, Alasdair; Yang, Fuyu] Univ East Anglia, Sch Econ, Norwich NR4 7TJ, Norfolk, England. RP Brown, A (autor correspondente), Univ East Anglia, Sch Econ, Norwich NR4 7TJ, Norfolk, England. EM alasdair.brown@uea.ac.uk; fuyu.yang@uea.ac.uk FU British Academy; Leverhulme Trust [SG140097]; Research and Specialist Computing Support service at the University of East Anglia FX We would like to thank Paul Pecorino, the Editor, and two anonymous referees for helpful suggestions and comments. We are also grateful to Adam Rivers, Maurizio Fiaschetti, Bob Sugden, and audiences at UEA, the 2016 Royal Economic Society Annual Conference in Sussex, the 2016 Sport Economics and Sport Management Conference in Berlin, and the Behavioral Finance Group at Queen Mary for earlier feedback. Alasdair Brown acknowledges financial support from the British Academy and the Leverhulme Trust (Ref: SG140097). The research presented in this article was carried out on the High Performance Computing Cluster supported by the Research and Specialist Computing Support service at the University of East Anglia. The usual disclaimer applies. 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Econ. Behav. Organ. PD AUG PY 2009 VL 71 IS 2 BP 361 EP 371 DI 10.1016/j.jebo.2009.03.020 PG 11 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 470SJ UT WOS:000267999900021 DA 2022-08-04 ER PT J AU Levy, H Levy, M AF Levy, H Levy, M TI Prospect theory and mean-variance analysis SO REVIEW OF FINANCIAL STUDIES LA English DT Article ID STOCHASTIC-DOMINANCE; ASSET PRICES; RISK; UNCERTAINTY; BEHAVIOR; UTILITY; EQUITY; TESTS AB The experimental results of prospect theory (PT) reveal suggest that investors make decisions based on change of wealth rather than total wealth, that preferences are S-shaped with a risk-seeking segment, and that probabilities are subjectively distorted. This article shows that while PT's findings are in sharp contradiction to the foundations of mean-variance (MV) analysis, counterintuitively, when diversification between assets is allowed, the MV and PT-efficient sets almost coincide. 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PD WIN PY 2004 VL 17 IS 4 BP 1015 EP 1041 DI 10.1093/rfs/hhg062 PG 27 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 858SP UT WOS:000224212300004 DA 2022-08-04 ER PT J AU Diez-Esteban, JM Garcia-Gomez, CD Lopez-Iturriaga, FJ Santamaria-Mariscal, M AF Maria Diez-Esteban, Jose Diego Garcia-Gomez, Conrado Javier Lopez-Iturriaga, Felix Santamaria-Mariscal, Marcos TI Corporate risk-taking, returns and the nature of major shareholders: Evidence from prospect theory SO RESEARCH IN INTERNATIONAL BUSINESS AND FINANCE LA English DT Article DE Corporate risk-taking; firm performance; prospect theory; family firms; institutional investors ID FAMILY-CONTROLLED FIRMS; INSTITUTIONAL INVESTORS; OWNERSHIP STRUCTURE; IDIOSYNCRATIC RISK; ACCOUNTING RISK; STRATEGIC RISK; ASSET PRICES; PERFORMANCE; GOVERNANCE; PARADOX AB This paper analyses the relation between corporate risk-taking and firm performance for a sample of international listed firms over the period 2001-2013. We consider the approaches on individual behavior (specifically prospect theory) to propose a U-shaped relation between corporate risk-taking and firm returns. We find that firms adopt an attitude of risk-seeking when the expected performance is below a target performance (to avoid an anticipated loss) and an attitude of risk averse when the performance exceeds that target. This relation is affected by the economic context and the nature of the major shareholder: Firms controlled by families or institutional investors react more conservatively (taking or avoiding risk) to changes in corporate results. We are aware that our results, are affected by both the theoretical model and the temporal and spatial framework used. C1 [Maria Diez-Esteban, Jose; Santamaria-Mariscal, Marcos] Univ Burgos, Dept Econ & Business Adm, Pza Infanta Elena, Burgos 09001, Spain. [Diego Garcia-Gomez, Conrado] Univ Valladolid, Dept Financial Econ & Accounting, Duques de Soria Campus,Calle Univ S-N, Soria 42004, Spain. [Javier Lopez-Iturriaga, Felix] Univ Valladolid, Dept Financial Econ & Accounting, Avda Valle Esgueva 6, E-47011 Valladolid, Spain. [Javier Lopez-Iturriaga, Felix] NRU Higher Sch Econ, Perm, Russia. RP Garcia-Gomez, CD (autor correspondente), Univ Valladolid, Dept Financial Econ & Accounting, Duques de Soria Campus,Calle Univ S-N, Soria 42004, Spain. EM jmdiez@ubu.es; conradodiego.garcia@uva.es; flopez@eco.uva.es; msanta@ubu.es RI DIEZ-ESTEBAN, JOSE MARIA/R-6043-2016; Gómez, Conrado Diego García/V-4965-2019; García-Gómez, Conrado Diego/B-5196-2015; García-Gómez, Conrado Diego/AAB-2204-2020; Santamaria, Marcos/AAB-4838-2020; López-Iturriaga, Félix J./F-5321-2012 OI DIEZ-ESTEBAN, JOSE MARIA/0000-0003-3053-3521; García-Gómez, Conrado Diego/0000-0001-8184-3285; García-Gómez, Conrado Diego/0000-0001-8184-3285; Santamaria, Marcos/0000-0002-2564-7017; López-Iturriaga, Félix J./0000-0003-0875-5283 FU Spanish Ministry of Economy and Competitiveness [ECO2014-56102-P]; Government of the Russian Federation FX We acknowledge the Spanish Ministry of Economy and Competitiveness for financial support (Project ECO2014-56102-P). This paper was prepared also within the framework of the Basic Research Program at the National Research University Higher School of Economics (HSE) and supported within the framework of a subsidy granted to the HSE by the Government of the Russian Federation for the implementation of the Global Competitiveness Program. The authors are grateful to Oscar Lopez de Foronda for his comments on previous versions. All the remaining errors are our responsibility. 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Int. Bus. Financ. PD DEC PY 2017 VL 42 BP 900 EP 911 DI 10.1016/j.ribaf.2017.07.025 PG 12 WC Business, Finance WE Social Science Citation Index (SSCI) SC Business & Economics GA FO6LK UT WOS:000416974400066 DA 2022-08-04 ER PT J AU Chou, PH Ho, PH Ko, KC AF Chou, Pin-Huang Ho, Po-Hsin Ko, Kuan-Cheng TI Do industries matter in explaining stock returns and asset-pricing anomalies? SO JOURNAL OF BANKING & FINANCE LA English DT Article DE Industry; Cross-section; Asset pricing model ID BOOK-TO-MARKET; PROSPECT-THEORY; CROSS-SECTION; RISK-FACTORS; MOMENTUM; MODELS; SIZE; AUTOCORRELATION; CLASSIFICATIONS; EQUILIBRIUM AB Industry returns cannot be explained fully by well-known asset pricing models. This study reveals that common factors extracted from industry returns carry significant risk premiums that go beyond the explanatory power of size, book-to-market (BM) ratios, and momentum. In particular, this study shows that (1) the small-firm effect is significant only for firms whose market capitalization is below their industry average; (2) the BM effect is an intra-industry phenomenon; (3) a one-year momentum effect is significant only for firms whose BM ratio is smaller than the industry average and limited to non-January months; and (4) there is seasonality in all effects that cannot be explained by risk-based asset-pricing models. Neither rational nor behavioral theories alone can explain industry returns, and it is perhaps too hasty to attribute asset pricing anomalies to a single driving force. (C) 2011 Elsevier B.V. All rights reserved. C1 [Chou, Pin-Huang] Natl Cent Univ, Dept Finance, Jhongli 32054, Taiwan. [Ho, Po-Hsin] Natl United Univ, Dept Finance, Miaoli 36003, Taiwan. [Ko, Kuan-Cheng] Natl Chi Nan Univ, Dept Banking & Finance, Puli 54561, Taiwan. RP Chou, PH (autor correspondente), Natl Cent Univ, Dept Finance, Jhongli 32054, Taiwan. 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Bank Financ. PD FEB PY 2012 VL 36 IS 2 BP 355 EP 370 DI 10.1016/j.jbankfin.2011.07.016 PG 16 WC Business, Finance; Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA 896SV UT WOS:000300592600004 DA 2022-08-04 ER PT J AU Chandra, A Thenmozhi, M AF Chandra, Abhijeet Thenmozhi, M. TI Behavioural Asset Pricing: Review and Synthesis SO JOURNAL OF INTERDISCIPLINARY ECONOMICS LA English DT Review DE Behavioural economics; asset pricing; investor behaviour; experimental markets; ASM ID CROSS-SECTION; INVESTOR SENTIMENT; MARKET EQUILIBRIUM; CONDITIONAL CAPM; PROSPECT-THEORY; RISK; PRICES; MODEL; VALUATION; LIQUIDITY AB This article presents an overview of literature on behavioural and experimental asset pricing theory. We systematically review the evolution and current development of behavioural asset pricing models as an alternate approach to asset pricing in financial economics literature. A review and synthesis of research carried out in behavioural finance spreading across theoretical, empirical and experimental approaches are presented to understand the behavioural dimension of pricing of financial assets. From theoretical perspective, behavioural asset pricing models try to adopt additional behavioural variables into asset pricing process. In terms of empirical investigation perspective, it is documented that econometric and computational advancement takes its biggest place ever in financial literature when compared with the other field. Our review underlines the fact that the direction of advancing a methodology is changing from financial literature to economics due to the fact that there is huge account of raw data available to analyze. Future research direction should be judging the empirical power of the asset pricing models and their role in practice for incorporating a new dimension to the model. The distinctiveness of the study is that this is the first attempt to review literature written on behavioural asset pricing models in the form of structural empirical review. In doing so, the historical perspective of the concept and the place it will take in future are clarified and the way further researches will be conducted are explored. C1 [Chandra, Abhijeet] Indian Inst Technol Kharagpur, Vinod Gupta Sch Management, Finance & Accounting, Kharagpur, W Bengal, India. [Thenmozhi, M.] Indian Inst Technol Madras, Dept Management Studies, Finance, Madras, Tamil Nadu, India. RP Chandra, A (autor correspondente), Indian Inst Technol Kharagpur, Vinod Gupta Sch Management, Finance & Accounting, Kharagpur, W Bengal, India. 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Interdisc. Educ. PD JAN PY 2017 VL 29 IS 1 BP 1 EP 31 DI 10.1177/0260107916670559 PG 31 WC Economics WE Emerging Sources Citation Index (ESCI) SC Business & Economics GA GX4VZ UT WOS:000447737700001 DA 2022-08-04 ER PT J AU Mei, ZX AF Mei, Zhaoxun TI The design of pension contracts: on the perspective of customers SO ANNALS OF ACTUARIAL SCIENCE LA English DT Article DE Cumulative Prospect Theory; Life and pension insurance; Product design; Portfolio choice ID PROSPECT-THEORY; INSURANCE; LIFE; VALUATION; RISK; CONSUMPTION; OPTIONS; UTILITY; RETURN AB This paper introduces a new pension contract which provides a smoothed return for the customer. The new contract protects customers from adverse asset price movements while keeping the potential of positive returns. It has a transparent structure and clear distribution rule, which can be easily understood by the customer. We compare the new contract to two other contracts under Cumulative Prospect Theory (CPT); one has a similar product structure but without guarantees and the other provides the same guarantee rate but with a different structure. The results show that the new contract is the most attractive contract for a CPT-maximising customer. Yet, we find different results if we let the customer be an Expected Utility Theory-maximising one. Moreover, this paper presents the static optimal portfolio for an individual customer. The results conform to the traditional pension advice that young people should invest more of their money in risky assets while older people should put more money in less risky assets. C1 [Mei, Zhaoxun] Heriot Watt Univ, Actuarial Math & Stat, G-11 Colin Maclaurin Bldg, Edinburgh EH14 4AS, Midlothian, Scotland. RP Mei, ZX (autor correspondente), Heriot Watt Univ, Actuarial Math & Stat, G-11 Colin Maclaurin Bldg, Edinburgh EH14 4AS, Midlothian, Scotland. EM zm61@hw.ac.uk FU Actuarial Research Centre of the Institute and Faculty of Actuaries FX The author thanks an anonymous referee for kindly reviewing the paper. He gratefully appreciates the supervising from Catherine Donnelly, Andrew Cairns and Torsten Kleinow. Support for this research from the Actuarial Research Centre of the Institute and Faculty of Actuaries is gratefully acknowledged. 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Actuar. Sci. PD SEP PY 2019 VL 13 IS 2 BP 219 EP 240 DI 10.1017/S1748499518000143 PG 22 WC Economics WE Emerging Sources Citation Index (ESCI) SC Business & Economics GA KL0PW UT WOS:000513136100001 DA 2022-08-04 ER PT J AU Ormos, M Timotity, D AF Ormos, Mihaly Timotity, Dusan TI Generalized asset pricing: Expected Downside Risk-based equilibrium modeling SO ECONOMIC MODELLING LA English DT Article DE Behavioral finance; Asset pricing; Prospect Theory; Anchoring; Conditional Value-at-Risk; Downside risk ID EFFICIENT CAPITAL-MARKETS; VALUE-AT-RISK; RETURNS; MICROSTRUCTURE; DISTRIBUTIONS; PREFERENCE; SELECTION; VARIANCE AB We introduce an equilibrium asset pricing model, which we build on the relationship between a novel risk measure, the Expected Downside Risk (EDR), and the expected return. On the one hand, our proposed risk measure uses a nonparametric approach that allows us to get rid of any assumption on the distribution of returns. On the other hand, our asset pricing model is based on loss-averse investors of Prospect Theory, through which we implement the risk-seeking behavior of investors in a dynamic setting. By including EDR in our proposed model, unrealistic assumptions of commonly used equilibrium models - such as the exclusion of risk-seeking or price-maker investors and the assumption of unlimited leverage opportunity for a unique interest rate - can be omitted. Therefore, we argue that based on more realistic assumptions, our model is able to describe equilibrium expected returns with higher accuracy, which we support by empirical evidence as well. (C) 2015 Elsevier B.V. All rights reserved. C1 [Ormos, Mihaly; Timotity, Dusan] Budapest Univ Technol & Econ, Dept Finance, H-1117 Budapest, Hungary. RP Ormos, M (autor correspondente), Budapest Univ Technol & Econ, Dept Finance, Magyar Tudasok Krt 2,Bld Q, H-1117 Budapest, Hungary. EM ormos@finance.bme.hu; timotity@finance.bme.hu RI Ormos, Mihály/E-1051-2011 OI Ormos, Mihály/0000-0002-3224-7636 FU Janos Bolyai Research Scholarship of the Hugarian Academy of Sciences; Pallas Athene Domus Scientiae Foundation FX We are grateful to the seminar and conference participants at the Workshop on Behavioural Economics and Industrial Organization at Corvinus University, 2014, 10th EBES Conference in Istanbul, the 10th International Scientific Conference on European Financial Systems at Masaryk University and 5th International Conference "Economic Challenges in Enlarged Europe" in Tallinn. We would like to gratefully acknowledge the valuable comments and suggestions of the Editor, Prof. Sushanta Mallick and three anonymous referees that contribute to a substantially improved paper. Mihaly Ormos acknowledges the support by the Janos Bolyai Research Scholarship of the Hugarian Academy of Sciences. Dusan Timotity acknowledges the support by the Pallas Athene Domus Scientiae Foundation. This research was partially supported by Pallas Athene Domus Scientiae Foundation. 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PD JAN PY 2016 VL 52 BP 967 EP 980 DI 10.1016/j.econmod.2015.10.036 PN B PG 14 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA CZ9JW UT WOS:000367414900058 OA Green Accepted, Green Submitted DA 2022-08-04 ER PT J AU Franke, M AF Franke, Maximilian TI Do market participants misprice lottery-type assets? Evidence from the European soccer betting market SO QUARTERLY REVIEW OF ECONOMICS AND FINANCE LA English DT Article DE Lottery-type assets; Favorite-longshot bias; Betting exchange; Bookmaker market; Misperception; Adverse selection ID FAVORITE-LONGSHOT BIAS; INVESTOR SENTIMENT; PROSPECT-THEORY; CROSS-SECTION; HOME BIAS; EFFICIENCY; ODDS; INFORMATION; PREFERENCE; MOMENTUM AB This paper addresses findings from previous asset pricing research that reveal lottery-like stocks are mispriced. This conclusion, however, relies on asset pricing models which might suffer from the joint hypothesis problem: That is, abnormal returns can reflect market inefficiencies, a bad asset pricing model or both. I contribute to the discussion by examining lottery-type assets on the European betting market. Compared to stock markets, betting markets offer the advantage that no asset pricing model is necessary to test market efficiency because outcomes are observable at a terminal point. I use a unique data set of soccer odds covering both a betting exchange and the bookmaker market. The findings reveal a favorite-longshot bias in both market structures confirming the findings from previous literature that lottery-type assets are mispriced. An expected utility model and a prospect theory model confirm that the favorite-longshot bias on the betting exchange is due to misperception of probabilities rather than risk-love. Although bookmakers also bias odds there is evidence that bookmakers are rational in protecting themselves from adverse selection and/or in increasing their turnover. This conclusion is supported by further analysis on the tennis betting market. (C) 2019 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved. C1 [Franke, Maximilian] Ulm Univ, Helmholtzstr 18, D-89081 Ulm, Germany. RP Franke, M (autor correspondente), Ulm Univ, Helmholtzstr 18, D-89081 Ulm, Germany. 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Rev. Econ. Financ. PD FEB PY 2020 VL 75 BP 1 EP 18 DI 10.1016/j.qref.2019.05.016 PG 18 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA KU9BA UT WOS:000520015200001 DA 2022-08-04 ER PT J AU Huber, J Kirchler, M Stefan, M AF Huber, Juegen Kirchler, Michael Stefan, Matthias TI Experimental evidence on varying uncertainty and skewness in laboratory double-auction markets SO JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION LA English DT Article DE Experimental finance; Skewness; Ambiguity; Risk; Experience sampling; Market efficiency ID RATIONAL-EXPECTATIONS; PROSPECT-THEORY; ASSET MARKETS; INFORMATION; BUBBLES; PREFERENCE; AMBIGUITY; PROBABILITY; EXPERIENCE; DECISION AB We investigate the influence of skewness in asset fundamentals on asset prices under different states of uncertainty in double-auction markets. Three different types of assets are considered: risky assets, ambiguous assets and assets where the fundamental value distribution can be learned by repeated sampling of realizations. We show that market prices for skewed assets initially differ from those of non-skewed assets for risky as well as for ambiguous assets. Because of learning, the difference in market prices mostly disappears towards the end of trading. When fundamentals are "learned" by experience sampling, prices of all assets, irrespective of skewness, are very efficient from the beginning. Thus, when probabilities are not described but experienced, subjects are better able to estimate the fundamental value of an asset. (C) 2014 Elsevier B.V. All rights reserved. C1 [Huber, Juegen; Kirchler, Michael; Stefan, Matthias] Univ Innsbruck, Dept Banking & Finance, A-6020 Innsbruck, Austria. [Kirchler, Michael] Univ Gothenburg, Dept Econ, Ctr Finance, S-40530 Gothenburg, Sweden. RP Kirchler, M (autor correspondente), Univ Innsbruck, Dept Banking & Finance, Univ Str 15, A-6020 Innsbruck, Austria. 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Econ. Behav. Organ. PD NOV PY 2014 VL 107 SI SI BP 798 EP 809 DI 10.1016/j.jebo.2014.04.004 PN B PG 12 WC Economics WE Social Science Citation Index (SSCI) SC Business & Economics GA AY5FU UT WOS:000347599200024 DA 2022-08-04 ER PT J AU MacLean, L Zhao, YG AF MacLean, Leonard Zhao, Yonggan TI Kelly investing with downside risk control in a regime-switching market SO QUANTITATIVE FINANCE LA English DT Article DE Optimal growth investing; Risk control; Shortfall rate and size; Switching regimes; Blended Kelly strategy ID CAPITAL GROWTH; PROSPECT-THEORY; MODEL AB The optimal capital growth strategy or Kelly strategy has many desirable properties, such as maximizing the asymptotic long-run growth of capital. However, it is aggressive and can have the considerable short-run risk of losing much of the invested wealth. In this paper, we provide a method to obtain the maximum growth while staying above a specified downside wealth threshold with high probability, where shortfalls below the threshold are penalized with a convex function of shortfall. The financial market is characterized by regimes, where the dynamics of the stochastic regime process is Markovian. Within a regime, the asset prices are lognormal. With the additional model features of regimes and downside risk control, the optimal strategy has a modified Kelly format. The modification requires the assignment of weights to each regime, with the weights incorporating the risk control. The multi-asset problem is reduced to determining the regime weights and the fraction of investment capital allocated to risky assets. The estimation risk is controlled by regime switching and the decision risk is controlled by the downside threshold. The methods are applied to the problem of investing in select sector exchange-traded funds. C1 [MacLean, Leonard; Zhao, Yonggan] Dalhousie Univ, Rowe Sch Business, Halifax, NS B3H 4R2, Canada. RP MacLean, L (autor correspondente), Dalhousie Univ, Rowe Sch Business, Halifax, NS B3H 4R2, Canada. 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PD JAN 2 PY 2022 VL 22 IS 1 SI SI BP 75 EP 94 DI 10.1080/14697688.2021.1993617 EA JAN 2021 PG 20 WC Business, Finance; Economics; Mathematics, Interdisciplinary Applications; Social Sciences, Mathematical Methods WE Science Citation Index Expanded (SCI-EXPANDED); Social Science Citation Index (SSCI) SC Business & Economics; Mathematics; Mathematical Methods In Social Sciences GA YM7AY UT WOS:000723573400001 DA 2022-08-04 ER PT J AU Park, BJ AF Park, Beum-Jo TI Time-varying, heterogeneous risk aversion and dynamics of asset prices among boundedly rational agents SO JOURNAL OF BANKING & FINANCE LA English DT Article DE Boundedly rational agents; Time-varying and heterogeneous risk aversion; Herding; Adaptive beliefs system; Asset price dynamics; Excess volatility; Asymmetry in volatility ID PRICING MODEL; EXCHANGE MARKET; PROSPECT-THEORY; FLUCTUATIONS; VOLATILITY; BELIEFS AB Besides the heterogeneity of agents' beliefs, we perceive that, contrary to the constant short-term risk attitude of fundamentalists, the risk attitude for chartists varies over time due to psychological factors such as prospect theory's reflection effect, which refers to the reversing of risk aversion/risk loving in the case of gains/losses. Thus, this paper assumes that complicated dynamics in recent asset markets are attributed to the significant effects of time-varying and heterogeneous risk attitudes as well as agents' herd behavior, and generalizes an adaptive beliefs system in order to characterize them. This paper also analyzes the existence of stable steady states of the generalized adaptive beliefs system, providing a new psychological insight into excessive and asymmetric volatility. Given the dynamic system, numerical simulations find that, when the chartists are less risk averse than the fundamentalists and their herding propensity increases, time variation in risk attitudes gives rise to large amplitude changes in proportion to agent groups and expand price fluctuations through chaotic dynamics. Along these lines, this paper highlights that psychological factors serve as decisive source of asymmetry in volatility as well as excess volatility, which are observed in the return data. (C) 2014 Elsevier B.V. All rights reserved. C1 Dankook Univ, Dept Econ, Yongin 448701, Gyeonggi Do, South Korea. RP Park, BJ (autor correspondente), Dankook Univ, Dept Econ, 44-1 Jukjeon Dong, Yongin 448701, Gyeonggi Do, South Korea. 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Prospect theory: An analysis of decision under risk, Econometrica, 47, 263-292], gains and losses are measured from a reference point. We attempted to ascertain to what extent the reference point shifts following gains or losses. In questionnaire studies, we asked subjects what stock price today will generate the same utility as a previous change in a stock price. From participants' responses, we calculated the magnitude of reference point adaptation, which was significantly greater following a gain than following a loss of equivalent size. We also found the asymmetric adaptation of gains and losses persisted when a stock was included within a portfolio rather than being considered individually. In studies using financial incentives within the BDM procedure [Becker, G. M., DeGroot, M. H., & Marschak, J. (1964). Measuring utility by a single-response sequential method. Behavioral Science, 9(3), 226-232], we again noted faster adaptation of the reference point to gains than losses. We related our findings to several aspects of asset pricing and investor behavior. (C) 2007 Elsevier Inc. All rights reserved. C1 [Arkes, Hal R.] Ohio State Univ, Dept Psychol, Columbus, OH 43210 USA. [Hirshleifer, David] Ohio State Univ, Fisher Coll Business, Columbus, OH 43210 USA. [Jiang, Danling] Florida State Univ, Coll Business, Tallahassee, FL 32306 USA. [Lim, Sonya] De Paul Univ, Kellstadt Grad Sch Business, Chicago, IL 60614 USA. RP Arkes, HR (autor correspondente), Ohio State Univ, Dept Psychol, 240 N Lazenby Hall,1827 Neil Ave, Columbus, OH 43210 USA. 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