Regret Theory and Equilibrium Asset Prices
Joint Authors
Wang, Jian
Yang, Jun
Sheng, Jiliang
Source
Mathematical Problems in Engineering
Issue
Vol. 2014, Issue 2014 (31 Dec. 2014), pp.1-7, 7 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2014-03-13
Country of Publication
Egypt
No. of Pages
7
Main Subjects
Abstract EN
Regret theory is a behavioral approach to decision making under uncertainty.
In this paper we assume that there are two representative investors in a frictionless market, a representative active investor who selects his optimal portfolio based on regret theory and a representative passive investor who invests only in the benchmark portfolio.
In a partial equilibrium setting, the objective of the representative active investor is modeled as minimization of the regret about final wealth relative to the benchmark portfolio.
In equilibrium this optimal strategy gives rise to a behavioral asset priciting model.
We show that the market beta and the benchmark beta that is related to the investor’s regret are the determinants of equilibrium asset prices.
We also extend our model to a market with multibenchmark portfolios.
Empirical tests using stock price data from Shanghai Stock Exchange show strong support to the asset pricing model based on regret theory.
American Psychological Association (APA)
Sheng, Jiliang& Wang, Jian& Yang, Jun. 2014. Regret Theory and Equilibrium Asset Prices. Mathematical Problems in Engineering،Vol. 2014, no. 2014, pp.1-7.
https://search.emarefa.net/detail/BIM-507515
Modern Language Association (MLA)
Sheng, Jiliang…[et al.]. Regret Theory and Equilibrium Asset Prices. Mathematical Problems in Engineering No. 2014 (2014), pp.1-7.
https://search.emarefa.net/detail/BIM-507515
American Medical Association (AMA)
Sheng, Jiliang& Wang, Jian& Yang, Jun. Regret Theory and Equilibrium Asset Prices. Mathematical Problems in Engineering. 2014. Vol. 2014, no. 2014, pp.1-7.
https://search.emarefa.net/detail/BIM-507515
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-507515