Mental Accounting, Loss Aversion, and Individual Stock Returns

Nicholas Barberis and Ming Huang

No 8190, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study equilibrium firm-level stock returns in two economies: one in which investors are loss averse over the fluctuations of their stock portfolio and another in which they are loss averse over the fluctuations of individual stocks that they own. Both approaches can shed light on empirical phenomena, but we find the second approach to be more successful: in that economy, the typical individual stock return has a high mean and excess volatility, and there is a large value premium in the cross-section which can, to some extent, be captured by a commonly used multifactor model.

JEL-codes: G12 (search for similar items in EconPapers)
Date: 2001-03
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (310)

Published as Barberis, N. and M. Huang. “Mental Accounting, Loss Aversion, and Individual Stock Returns." Journal of Finance 56 (2001): 1247-1292.

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