Shefrin - Behavioral & Neoclassical asset pricing theories - 2008

Pricing Kernel (SDF)
Stochastic discount factor is a state
price per unit probability.
SDF version 1 M = ν/Π
SDF version 2
M = ν/P R
Both different routes to studying the effect
of sentiment Λ on prices.
Price of any one-period security Z is
q Z = νZ = E π {MZ}
E t [R i,t+1 M t+1 ] = 1
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Copyright Hersh Shefrin 2008