Behavioral Finance and Asset Pricing行为金融和资产定价.ppt

Behavioral Finance and Asset Pricing What effect does psychological bias (irrationality) have on asset demands and asset prices? 1. We want to employ an intertemporal choice model to evaluate the effect of psychological bias on consumption and portfolio choices Barberis, Huang and Santos (2001): Under prospect theory we can identify two forms of psychological bias - - loss aversion – investors are more sensitive to recent losses than they are to recent gains in wealth house money effect – the sequencing of losses and gains has an effect on investor behavior, so that after a recent run-up in asset prices (gains) investors become less risk averse (gains “cushion” losses) Premise of the BHS model: investors derive direct utility from consumption and changes in the value of financial wealth. investors care about fluctuations in financial wealth whether or not they are correlated with consumption. investors have time-varying risk aversion due to loss aversion from financial wealth fluctuations Implications of the BHS model: asset prices exhibit greater volatility than they would based solely on changes in fundamentals (earnings). asset prices and returns become more predictable. high equity risk premium (“excess volatility” in asset prices leads risk averse investors to require a higher rate of return on stocks). BHS model economy 1(Lucas 1978 model where consumption is equated to dividends, so that stocks are a claim on future consumption) Technology A portfolio of risky assets has return (Rt+1) and pays a stream of dividends (Dt). In equilibrium aggregate consumption (Ct) equals dividends plus nonfinancial income from labor (Yt). Both dividends and nonfinancial income are perishable. The risk-free asset has rate Rf,t . Aggregate consumption and dividends follow a joint lognormal process where the error terms ~ i.i.d. N(0,1) as Preferences Infinitely lived individuals maximize their lifetime utility where γ 1 is the risk aversion coefficient, ρ is