Prospect Theory, the Disposition Effect and Asset Prices

摘要：

This paper proposes a full equilibrium model for studying the implications of the S-shaped value function of prospect theory for individual trading, security prices and trading volume. We show that (i) the concavity/convexity of the value function can drive the disposition effect; (ii) the disposition effect can lead to momentum in the cross-section of stock returns; (iii) the disposition effect can explain why there is more trading in rising markets than in falling markets; and (iv) the concavity/convexity of the value function alone, in the absence of loss aversion, raises equity premiums. In particular, prospect theory preference with Tversky and Kahneman (1992JRU) parameter values generates annual price momentum of roughly 1％ in a calibrated economy.

关键词： Prospect Theory Mental Accounting Disposition Effect Momentum Equity Premium Turnover

作者: Yan Li Liyan Yang

作者单位: Department of Economics, Cornell University, Ithaca, NY 14850

会议类型: 国际会议

会议名称: 2009年中国金融国际年会

会议地点: 广州

会议语种:英文

页码: 1-46

在线出版日期: 2009-07-07（万方平台首次上网日期，不代表论文的发表时间）