Regret Aversion and Stock Returns in Ccapm : Evidence from China

we develop a Consumption Capital Asset Pricing Model with Regret Aversion (R-CCAPM) for stock returns. A representative investor determines allocation of wealth between consumption and investment by perceiving the "expected rate of return" and "regret effect" of the stock to maximize utility. Under the choice of intertemporal investment and consumption, the expected rate of return shows a downward convex shape with the change in regret aversion. This mechanism is confirmed using data from China's A-share market and different signals of the bull and bear market. Our findings improve empirical results of the CCAPM by smaller pricing error and equity premium