X-CAPM: An extrapolative capital asset pricing model

Nicholas Barberis, Robin Greenwood, Lawrence Jin and Andrei Shleifer

Journal of Financial Economics, 2015, vol. 115, issue 1, 1-24

Abstract: Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns; importantly, however, it is also consistent with the survey evidence on investor expectations.

Keywords: Expectations; Extrapolation; Predictability; Volatility (search for similar items in EconPapers)
JEL-codes: G02 G12 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (212)

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Related works:
Working Paper: X-CAPM: An Extrapolative Capital Asset Pricing Model (2013)
Working Paper: X-CAPM: An Extrapolative Capital Asset Pricing Model
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:115:y:2015:i:1:p:1-24

DOI: 10.1016/j.jfineco.2014.08.007

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