A note on the existence of CAPM equilibria with homogeneous Cumulative Prospect Theory preferences

This note identifies and fixes a minor gap in Proposition 1 in Barberis and Huang (2008). Assuming homogeneous Cumulative Prospect Theory decision makers, we show that CAPM is a necessary (though not sufficient) condition that must hold in equilibrium. We support our result with numerical examples where security prices become negative.

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Year of publication:	2012-01
Authors:	Vigna, Matteo Del
Institutions:	Dipartimento di Scienze per l'Economia e l'Impresa, Università degli Studi di Firenze
Subject:	asset pricing \| capital asset pricing model \| cumulative prospect theory

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Extent:	application/pdf
Series:	Working Papers - Mathematical Economics.
Type of publication:	Book / Working Paper
Notes:	Number 2012-01 5 pages
Classification:	C62 - Existence and Stability Conditions of Equilibrium ; D53 - Financial Markets ; G11 - Portfolio Choice ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10009399211