Salience and Asset Prices

Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer

American Economic Review, 2013, vol. 103, issue 3, 623-28

Abstract: We present a simple model of asset pricing in which payoff salience drives investors' demand for risky assets. The key implication is that extreme payoffs receive disproportionate weight in the market valuation of assets. The model accounts for several puzzles in finance in an intuitive way, including preference for assets with a chance of very high payoffs, an aggregate equity premium, and countercyclical variation in stock market returns.

JEL-codes: D14 G11 G12 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.3.623
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Citations: View citations in EconPapers (92)

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Working Paper: Salience and Asset Prices (2013)
Working Paper: Salience and Asset Prices (2013)
Working Paper: Salience and Asset Prices
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