Myopic loss aversion, disappointment aversion, and the equity premium puzzle

This paper takes a close look at the 'behavioural finance' explanations of the equity premium puzzle, namely myopic loss aversion (Benartzi and Thaler, 1995) and disappointment aversion (Ang, Bekaert and Liu, 2000). The paper proposes a simple specification of loss and disappointment aversion and brings these theories to the data. The main conclusion of the paper is that a highly short-sighted investment horizon is required for the historical equity premium to be explained by loss aversion, while reasonable values for disappointment aversion are found also for long investment horizons. So, stocks may lose only in the short term, but may disappoint also in the long term.

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Year of publication:	2003
Authors:	Fielding, David ; Stracca, Livio
Publisher:	European Central Bank
Subject:	Geldpolitik \| Monetary Policy \| Zentralbank \| Central Bank

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Extent:	476160 bytes 37 p. application/pdf
Series:	Working paper series / European Central Bank ; 203
Type of publication:	Book / Working Paper
Language:	English
Classification:	G11 - Portfolio Choice ; G12 - Asset Pricing ; Currency. Monetary policy ; Individual Working Papers, Preprints
Source:	ArchiDok