Shefrin - Behavioral & Neoclassical asset pricing theories - 2008

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Market Efficiency Sentiment Λ = 0 The market is efficient when the representative trader, aggregating the beliefs of all traders, holds objective beliefs. and i.e., efficiency iff P R = Π When all investors hold objective beliefs Φ = (P R /Π) (δ R / δ R , Π ) = 1 Λ = ln(Φ) = 0 Copyright Hersh Shefrin 2008 17
When is Sentiment = 0? Consider the illustrative example. There are effectively two conditions required for market efficiency. Errors are unsystematic, meaning average error across the investor population is zero. Error-wealth covariance = 0, meaning errors are not concentrated in the investor population. Copyright Hersh Shefrin 2008 18
Page 1 and 2: Behavioural and Neoclassical Asset
Page 3 and 4: Neoclassical Asset Pricing Theory
Page 5 and 6: Weaknesses in Behavioural Asset Pri
Page 7 and 8: BAAP 2e The rest of my talk will d
Page 9 and 10: Heterogeneity is Behavioural Challe
Page 11 and 12: Representative Investor Models Man
Page 13 and 14: Simple Example of T14.1 Errors in F
Page 15 and 16: Defining Sentiment Intuitively In
Page 17: Formally Defining Sentiment Λ Gene
Page 21 and 22: 106.19% 105.82% 105.46% Shape of Se
Page 23 and 24: 106.19% 105.82% 105.46% 105.10% 104
Page 25 and 26: Mistakes About 2 nd Moments Suppos
Page 27 and 28: 106.19% Mix of Underconfident Pessi
Page 29 and 30: Histogram Return Expectations Decem
Page 31 and 32: Pricing Kernel (SDF) Stochastic di
Page 33 and 34: 106.19% 105.82% 105.46% 105.10% 104
Page 35 and 36: Fundamental Theorem for U-shaped Ca
Page 37 and 38: Market Prices Reflect Both Fundamen
Page 39 and 40: Aït-Sahalia - Lo’s SDF Estimate
Page 41 and 42: Dittmar (2002) Human Capital Copyri
Page 43 and 44: Barone Adesi- Engle-Mancini (2008)
Page 45 and 46: Relationship Between SDF and Mean-V
Page 47 and 48: MV Function ∼ Quadratic 2-factor
Page 49 and 50: Oscillating SDF The general oscil
Page 51 and 52: Additional Explanatory Power CA
Page 53 and 54: My prediction is that asset pricing
Page 55 and 56: SP/A Focuses on Hope and Fear Affec
Page 57 and 58: SP/A “Sentiment” with Aspiratio
Page 59: Summary Comprehensive SDF-based

Shefrin - Behavioral & Neoclassical asset pricing theories - 2008

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