Prospect Theory and the Size and Value Premium Puzzles
AbstractUsing canonical data for the US stock and bond markets, we show that the kinked piecewise exponential value function can rationalize the cross-section of stock returns in addition to the level of the equity premium, while the kinked piecewise-power value function of Tversky and Kahneman can explain only the latter.
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Bibliographic InfoPaper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2005/20.
Length: 9 pages
Date of creation: 22 Dec 2005
Date of revision:
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Prospect Theory; Premium Puzzles;
Find related papers by JEL classification:
- G00 - Financial Economics - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-28 (All new papers)
- NEP-FIN-2006-10-28 (Finance)
- NEP-UPT-2006-10-28 (Utility Models & Prospect Theory)
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2005/19, Department of Business and Management Science, Norwegian School of Economics.
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