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X-CAPM: An Extrapolative Capital Asset Pricing Model

Author

Listed:
  • Nicholas Barberis
  • Robin Greenwood
  • Lawrence Jin
  • Andrei Shleifer

Abstract

Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns; importantly, however, it is also consistent with the survey evidence on investor expectations.

Suggested Citation

  • Nicholas Barberis & Robin Greenwood & Lawrence Jin & Andrei Shleifer, "undated". "X-CAPM: An Extrapolative Capital Asset Pricing Model," Working Paper 86521, Harvard University OpenScholar.
  • Handle: RePEc:qsh:wpaper:86521
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    File URL: http://scholar.harvard.edu/shleifer/node/86521
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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