Coherent Preferences and Asset Prices in Stock Market

We study individual coherent preferences underlying asset prices and propose a set of explicit models for nonlinear V-shaped price pressure utility in a new framework. Coherent preferences are consistent interactive choices between momentum trading and reversal trading in stock market where market dynamic equilibrium exists. We find that: 1) coherent preferences generate nonlinear V-shaped price pressure and market dynamic equilibrium whereas beliefs contribute to discrepancy between market equilibrium prices and fundamental prices; and 2) subject individuals can display either disposition effect or inverse disposition effect. Our findings suggest a better asset price model with trading volume distribution in finance