Bubbles can persist because investors are better off riding bubbles. We define bubbles in a natural way as significant, prolonged deviations from fundamental values measured by the well-known asset pricing models. Our real-time bubble detection system shows that –using US industry returns–...

We propose a Capital Asset Pricing Model where investors exhibit prospect preferences. In equilibrium, we find that agents seek an optimal trade-off between expected returns, variance, and skewness. All assets in the economy are then priced by a three-factor model, which augments the security...