We argue that the equity premium puzzle stems from a mismatch of applying mental accounting to experiments on risk aversion but not to the standard consumption based asset pricing model. If, as we suggest, one applies mental accounting consistently in both areas the degrees of risk aversions...

This paper introduces and analyzes an evolutionary model of a financial market with a risk-free asset. Focus is on the study of local stability of the wealth dynamics through the application of recent results on the linearization and stability of random dynamical systems (Evstigneev, Pirogov and...

Estimates of agents' risk aversion differ between market studies and experimental studies. We demonstrate that the estimates can be reconciled through consistent treatment of agents' tendency for narrow framing, regarding integration of background wealth as well as across risky outcomes: Risk...

Institutional investors in equities tend to follow well-defined investment strategies, often based on factors such as size, value, momentum, quality, dividend yield and other stock characteristics. This paper explores the impact of capital flows between investment strategies on the cross-section...

Estimates of agents' risk aversion differ between market studies and experimental studies. We demonstrate that the estimates can be reconciled through consistent treatment of agents' tendency for narrow framing, regarding integration of background wealth as well as across risky outcomes: Risk...

Estimates of agents’ risk aversion differ between market studies and experimental studies. We demonstrate that these estimates can be reconciled through consistent treatment of agents’ propensity for narrow framing.

Markowitz and Sharpe won the Nobel Prize in Economics more than a decade ago for the development of Mean-Variance analysis and the Capital Asset Pricing Model (CAPM). In the year2002, Kahneman won the Nobel Prize in Economics for the development of Prospect Theory....

Under the assumption of normally distributed returns, we analyzewhether the Cumulative Prospect Theory of Tversky and Kahneman (1992) is consistent with the Capital Asset Pricing Model. We find that in every financial market equilibrium the Security Market Line Theorem holds....

Experimental stock markets are used to add some more evidence that Blacks (1976) leverage effect in financial markets does not necessarily stem from the financial leverage of the firm. We surprisingly find a large number of markets in which the leverage effect is observed although the underlying...

Markowitz and Sharpe won the Nobel Prize in Economics more than a decade ago for the development of Mean-Variance analysis and the Capital Asset Pricing Model (CAPM). In the year 2002, Kahneman won the Nobel Prize in Economics for the development of Prospect Theory. Can these two apparently...