We investigate whether risk seeking or non-concave utility functions can help to explain the cross-sectional pattern of stock returns. For this purpose, we analyze the stochastic dominance efficiency classification of the value-weighted market portfolio relative to benchmark portfolios based on...

Kenneth Arrow posed the hypotheses that investors reveal decreasing absolute risk aversion (DARA) and increasing relative risk aversion (IRRA). It is very difficult to empirically test these two hypotheses since one needs to analyze an investor's investment decisions at various points in his/her...

An investment experiment in which a real monetary profit or loss can occur is designed to test the capital asset pricing model (CAPM) and the generalized CAPM (segmented market model) with ex-ante parameters. Risk and return are found to be strongly associated. While in most cases the...

Expected Utility Theory, Rank Dependent Expected Utility and Cumulative Prospect Theory imply no First Degree Stochastic Dominance (FSD) violations. Prospect Theory and Configural Weight models either allow for FSD violation or even predict this phenomenon. I find experimentally that FSD...