This paper suggests incorporating investor probability weighting and the default risk of individual firms into a consumption-based asset pricing model. The extended model provides a unified solution for several anomalous patterns observed on financial markets. The analysis addresses not only...

This paper examines the behavior of the market equilibrium in an endowment economy in continuous time, in which a representative investor with exponential utility consumes the dividends generated by multiple risky assets. The dividends are assumed to be mutually independent and belong to a class...