After the financial market meltdown of the years 2007–2008 the Obama administration responded with large fiscal stimulus package, yet the reaction to this stimulus has been diverse. Some predicted a multiplier effect in the order of 1.5, others argued that the multiplier will be less than 0.5....

Recent history suggests that many boom–bust cycles are naturally driven by linkages between the credit market and asset prices. Additionally, new structured securities have been developed, e.g., MBS, CDOs, and CDS, which have acted as instruments of risk transfer. We show that there is a...

Based on the loss aversion model of asset pricing, this paper explores empirical evidence on the prospect theory for stock markets with time-series data. The analysis, using a state-space model, shows that previous gains and losses may have asymmetric effects on investment behavior, pointing to...