The security market line is often flat or downward-sloping. We hypothesize that probability weighting plays a role and that one ought to differentiate between periods in which agents overweight extreme events and those in which they underweight them. Overweighting inflates the probability of...

We study multi-period equilibrium asset pricing in an economy with Epstein-Zin (EZ-) agents whose preferences for consumption are represented by recursive utility and with loss averse (LA-) agents who derive additional utility of gains and losses and are averse to losses. We propose an...

We study a dynamic portfolio selection problem in which an agent trades a stock and a risk-free asset with the objective of maximizing the rank-dependent utility of her wealth at the terminal time of the investment horizon. Due to time inconsistency, we consider three types of agents,...