Market-wide Consequences of Behavioral Biases

Adam Szyszka

Chapter Chapter 5 in Behavioral Finance and Capital Markets, 2013, pp 119-142 from Palgrave Macmillan

Abstract: Abstract This chapter focuses on the consequences of behavioral biases to the capital market as a whole. Two major anomalies in the aggregate market-wide data, that is, the equity premium puzzle and the excessive volatility puzzle, are discussed in the first instance. Later, we move on to attempts of market modeling within the behavioral framework. Early models based on beliefs and preferences of investors do well with explaining some aspects, but lack power to describe other peculiarities of market behavior. Hence, the Generalized Behavioral Model is developed that aims to explain the whole range of market anomalies described in this book.

Keywords: Risk Aversion; Asset Price; Investor Sentiment; Equity Premium; Cash Flow Forecast (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-36629-0_6

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DOI: 10.1057/9781137366290_6

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