Shefrin - Behavioral & Neoclassical asset pricing theories - 2008

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Behavioural Asset Pricing Theories Behavioural asset pricing models involve assumptions that reflect human psychology. Strength of behavioural models is focus on rich features such as: Heuristics and biases such as overconfidence, gambler’s fallacy and hot hand fallacy Fundamental attribution error Gains/losses, conditional risk tolerance, probability weighting Copyright Hersh Shefrin 2008 3
Weaknesses in Behavioural Asset Pricing Literature The behavioural asset pricing journal literature lacks a well-defined formal definition of sentiment. Models largely restricted to one risk-free asset and one risky asset. Psychological assumptions vary considerably from model to model. Copyright Hersh Shefrin 2008 4
Page 1 and 2: Behavioural and Neoclassical Asset
Page 3: Neoclassical Asset Pricing Theory
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 and 18: Formally Defining Sentiment Λ Gene
Page 19 and 20: When is Sentiment = 0? Consider th
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
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Shefrin - Behavioral & Neoclassical asset pricing theories - 2008

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