Recent research suggests that the power law is one of the most universal laws in nature and it also seems to work quite fine in economics and finance. In this paper we show that the power law explains extremely well the relationship between the value of broad-based market indices and their...

In this paper analytical solutions for European option prices are derived for a class of rather general asset specific pricing kernels (ASPKs) and distributions of the underlying asset. Special cases include underlying assets that are lognormally or log-gamma distributed at expiration date T....

We perform an asset market experiment in order to investigate whether overconfidence induces trading. We investigate three manifestations of overconfidence: calibration-based overconfidence, the better-than-average effect and illusion of control. Novelly, the measure employed for...

Asset price processes are completely described by information processes and investors' preferences. In this paper we derive the relationship between the process of investors' expectations of the terminal stock price and asset prices in a general continuous time pricing kernel framework. To...

Starting from an information process governed by a geometric Brownian motion we show that asset returns are predictable if the elasticity of the pricing kernel is not constant. Declining [Increasing] elasticity of the pricing kernel leads to mean reversion and negatively autocorrelated asset...