Prospect Theory and the Size and Value Premium Puzzles

Enrico De Giorgi (), Thorsten Hens () and Thierry Post ()
Additional contact information
Thorsten Hens: Institute for Empirical Research in Economics, University of Zurich, Postal: University of Zurich, Institute for Empirical Research in Economics, Blümlisalpstrasse 10, 8006 Zürich, Switzerland, http://www.iew.unizh.ch/home/hens/CV.pdf
Thierry Post: Erasmus School of Economics, Erasmus University of Rotterdam, Postal: Erasmus University of Rotterdam, Erasmus School of Economics, P.O. Box 1738, 3000 DR Rotterdam, The Netherlands

No 2005/20, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: Using canonical data for the US stock and bond markets, we show that the kinked piecewise exponential value function can rationalize the cross-section of stock returns in addition to the level of the equity premium, while the kinked piecewise-power value function of Tversky and Kahneman can explain only the latter.

Keywords: Prospect Theory; Premium Puzzles (search for similar items in EconPapers)
JEL-codes: G00 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2005-12-22
New Economics Papers: this item is included in nep-fin and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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