Title: The Puzzling Countercyclicality of the Value Premium: Empirics and a Theory
Abstract:I propose a Capital Asset Pricing Model in which investor demand exhibits a speculative component. In equilibrium, investors' optimal trade-off between diversification and speculation generates predic...I propose a Capital Asset Pricing Model in which investor demand exhibits a speculative component. In equilibrium, investors' optimal trade-off between diversification and speculation generates predictable patterns for stocks with extreme book-to-market ratios. Using data on U.S. stocks, I find evidence consistent with the model predictions. I show that the value premium varies with investors’ propensity to speculate, and therefore includes a substantial behavioral component. Overall, the findings shed new light on the role of dichotomous risk-preferences in asset pricing.Read More
Publication Year: 2011
Publication Date: 2011-01-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 1
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot