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Asset Pricing for the Lottery-Like Security Under Probability Weighting : Based on Generalized Wang Transform

Huang, Hui; Sun, Jianchun; Zhang, Shunming - 2023

We present a two-stage lottery model with generalized Wang transform as a probability weighting function to formally derive investors’ demand for the lottery-like security. Probability overweight on higher expected payoffs accounts for investors’ overvaluation of the security with moderately...

Persistent link: https://www.econbiz.de/10014354027

Bayesian Inference and Portfolio Efficiency

Kandel, Shmuel - 1993

A Bayesian approach is used to investigate a sample's information about a portfolio's degree of inefficiency. With standard diffuse priors, posterior distributions for measures of portfolio inefficiency can concentrate well away from values consistent with efficiency, even when the portfolio is...

Persistent link: https://www.econbiz.de/10012474605

Bayesian Inference and Portfolio Efficiency

Kandel (deceased), Shmuel - 2008

Persistent link: https://www.econbiz.de/10012774475

Beta and Coskewness Pricing : Perspective from Probability Weighting

Shi, Yun - 2020

underweighting reduces it. We support our theory through an extensive empirical study …

Persistent link: https://www.econbiz.de/10012836466

Safety First, Loss Probability, and the Cross Section of Expected Stock Returns

CAO, Ji - 2019

Recent studies show that loss probability (LP) is a decisive factor when people evaluate risk of assets in laboratory experiments, suggesting a positive relationship between LP and expected stock returns. This corresponds to the classical "Safety-First" principle. We find empirical support for...

Persistent link: https://www.econbiz.de/10012860204

Learning about Consumption Dynamics

Johannes, Michael S. - 2016

This paper characterizes U.S. consumption dynamics from the perspective of a Bayesian agent who does not know the underlying model structure but learns over time from macroeconomic data. Realistic, high-dimensional macroeconomic learning problems, which entail parameter, model, and state...

Persistent link: https://www.econbiz.de/10013008930

Empirical Validity of Asset-Pricing Models : Application of Adaptive Significance Level and Equal Probability Test

Kim, Jae H. - 2018

We evaluate the empirical validity of popular asset-pricing models in explicit consideration of statistical power, by employing the adaptive significance level and equal-probability test. Past studies often use samples from a large cross-section of portfolios over a long time period, conducting...

Persistent link: https://www.econbiz.de/10012935403

The Quotient of Normal Random Variables and Application to Asset Price Fat Tails

Caginalp, Carey - 2018

The quotient of random variables with normal distributions is examined and proven to have have power law decay, with density f(x)~f_0 x^(-2), with the coefficient depending on the means and variances of the numerator and denominator, and their correlation. We also obtain the conditional...

Persistent link: https://www.econbiz.de/10012923032

The Probability Frontier or, Covariance Crunch : A New Paradigm for Mean-Variance Optimization

Stock, Robert D. - 2020

Three innovative concepts are combined here to create a new and unique framework for optimizing a portfolio of investments or bets. These inventions are:1) The Probability Frontier, a generalization of the Markowitz Efficient Frontier;2) The Positive Probability Estimate, which estimates the...

Persistent link: https://www.econbiz.de/10012844538

Shadow Probability Theory for Asset Pricing under Ambiguity

Izhakian, Yehuda (Yud) - 2011

under ambiguity, called Shadow probability theory, a generalization of the Choquet expected utility. In this model … space. Risk and risk attitude, on the other hand, apply to the subordinated space, as in classical expected utility theory … the classical asset pricing theory by incorporating ambiguous probabilities. It proposes a well defined ambiguity premium …

Persistent link: https://www.econbiz.de/10013119880