Equity Premium Puzzle, Prospect Theory and Subprime Crisis

Mouna Abdelhédi-Zouch, Mouna Boujelbène Abbes and Younès Boujelbène

The IUP Journal of Applied Finance, 2012, vol. 18, issue 2, 19-36

Abstract: The equity premium puzzle is one of the most important phenomena in finance. Related to behavioral finance, we use the concept of Myopic Loss Aversion (MLA) to explain the puzzle in developed and emerging markets. Empirically, we support the robustness of the positive equity premium across the most developed and emerging markets before the subprime crisis. However, the equity premium becomes negative during the subprime crisis, except for the financial markets of Hong Kong, India and Tunisia. Using a simulation method, we find that myopic emerging and developed market investors evaluate their portfolios annually. Furthermore, the optimal stocks allocation by myopic loss-averse investors is higher in emerging markets than in the developed markets.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (2)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjaf:v:18:y:2012:i:2:p:19-36

Access Statistics for this article

More articles in The IUP Journal of Applied Finance from IUP Publications
Bibliographic data for series maintained by G R K Murty ().