A note on the existence of CAPM equilibria with homogeneous Cumulative Prospect Theory preferences

Matteo Del Vigna ()
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Matteo Del Vigna: Dipartimento di Statistica e Matematica Applicata all'Economia, Universita' di Pisa & Universite' Paris-Dauphine

No 2012-01, Working Papers - Mathematical Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: This note identifies and fixes a minor gap in Proposition 1 in Barberis and Huang (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 result with numerical examples where security prices become negative.

Keywords: asset pricing; capital asset pricing model; cumulative prospect theory. (search for similar items in EconPapers)
JEL-codes: C62 D53 G11 G12 (search for similar items in EconPapers)
Pages: 5 pages
Date: 2012-01
New Economics Papers: this item is included in nep-upt
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