From Boom 'til Bust : How Loss Aversion Affects Asset Prices

From Boom 'til Bust : How Loss Aversion Affects Asset Prices

This article studies the impact of heterogeneous loss averse investors on asset prices. In very good states loss averse investors become gradually less risk averse as wealth rises above their reference point, pushing up equity prices. When wealth drops below the reference point the investors become...

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Bibliographic Details
Main Authors: Berkelaar, Arjan, Kouwenberg, Roy
Format: Journal Article
Language:EN
Published: 2012
Subjects:
General Aggregative Models: Neoclassical E130
Portfolio Choice
Investment Decisions G110
Asset Pricing
Trading volume
Bond Interest Rates G120
Online Access:http://hdl.handle.net/10986/5411
id okr-10986-5411
recordtype oai_dc
spelling okr-10986-54112021-04-23T14:02:22Z From Boom 'til Bust : How Loss Aversion Affects Asset Prices Berkelaar, Arjan Kouwenberg, Roy General Aggregative Models: Neoclassical E130 Portfolio Choice Investment Decisions G110 Asset Pricing Trading volume Bond Interest Rates G120 This article studies the impact of heterogeneous loss averse investors on asset prices. In very good states loss averse investors become gradually less risk averse as wealth rises above their reference point, pushing up equity prices. When wealth drops below the reference point the investors become risk seeking and demand for stocks increases drastically, eventually leading to a forced sell-off and stock market bust in bad states. Heterogeneity in reference points and initial wealth of the loss averse investors does not change the salient features of the equilibrium price process, such as a relatively high equity premium, high volatility and counter-cyclical changes in the equity premium. 2012-03-30T07:32:42Z 2012-03-30T07:32:42Z 2009 Journal Article Journal of Banking and Finance 03784266 http://hdl.handle.net/10986/5411 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language EN
topic General Aggregative Models: Neoclassical E130
Portfolio Choice
Investment Decisions G110
Asset Pricing
Trading volume
Bond Interest Rates G120
spellingShingle General Aggregative Models: Neoclassical E130
Portfolio Choice
Investment Decisions G110
Asset Pricing
Trading volume
Bond Interest Rates G120
Berkelaar, Arjan
Kouwenberg, Roy
From Boom 'til Bust : How Loss Aversion Affects Asset Prices
relation http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description This article studies the impact of heterogeneous loss averse investors on asset prices. In very good states loss averse investors become gradually less risk averse as wealth rises above their reference point, pushing up equity prices. When wealth drops below the reference point the investors become risk seeking and demand for stocks increases drastically, eventually leading to a forced sell-off and stock market bust in bad states. Heterogeneity in reference points and initial wealth of the loss averse investors does not change the salient features of the equilibrium price process, such as a relatively high equity premium, high volatility and counter-cyclical changes in the equity premium.
format Journal Article
author Berkelaar, Arjan
Kouwenberg, Roy
author_facet Berkelaar, Arjan
Kouwenberg, Roy
author_sort Berkelaar, Arjan
title From Boom 'til Bust : How Loss Aversion Affects Asset Prices
title_short From Boom 'til Bust : How Loss Aversion Affects Asset Prices
title_full From Boom 'til Bust : How Loss Aversion Affects Asset Prices
title_fullStr From Boom 'til Bust : How Loss Aversion Affects Asset Prices
title_full_unstemmed From Boom 'til Bust : How Loss Aversion Affects Asset Prices
title_sort from boom 'til bust : how loss aversion affects asset prices
publishDate 2012
url http://hdl.handle.net/10986/5411
_version_ 1764394960613801984

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