A note on the existence of CAPM equilibria with homogeneous cumulative prospect theory preferences

Matteo Del Vigna ()

Decisions in Economics and Finance, 2014, vol. 37, issue 2, 348 pages

Abstract: This note identifies and fixes a minor gap in Proposition 1 in Barberis and Huang (Am Econ Rev 98(5):2066–2100, 2008 ). Assuming homogeneous cumulative prospect theory decision makers, we show that CAPM is a necessary (though not sufficient) condition that must hold in equilibrium. We support our results with numerical examples where security prices become negative. Copyright Springer-Verlag Italia 2014

Keywords: Asset pricing; Capital asset pricing model; Cumulative prospect theory; C62; D53; G11; G12 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s10203-012-0140-8

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