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In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as “anomalies” the theory of rational finance cannot explain: (i) Predictability of asset returns; (ii) The Equity Premium; (iii) The Volatility Puzzle. We offer resolutions of...
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This paper derives a multiple-factor asset pricing model with asset price bubbles in an arbitrage-free, competitive … in an arbitrage-free market due to the existence of asset price bubbles. These positive alphas do not represent abnormal …
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