We consider a simple CAPM with heterogenous expectations on assets' mean returns and homogenous expectations on the covariance of returns. In this model alpha-opportunities naturally arise in a financial market equilibrium. We show that that the hunt for alpha-opportunities is a zero-sum game...

We study a number of large international military conflicts sinceWorld War II where we establish a news analysis as a proxy for theestimated likelihood that the conflict will result in a war. We findthat in cases when there is a pre-war phase, an increase in the warlikelihood tends to decrease...

We study a number of large international military conflicts since World War II where we establish a news analysis as a proxy for the estimated likelihood that the conflict will result in a war. We find that in cases when there is a pre-war phase, an increase in the war likelihood tends to...

Estimates of agents' risk aversion differ between market studies and experimental studies. We demonstrate that the estimates can be reconciled through consistent treatment of agents' tendency for narrow framing, regarding integration of background wealth as well as across risky outcomes: Risk...

Estimates of agents’ risk aversion differ between market studies and experimental studies. We demonstrate that these estimates can be reconciled through consistent treatment of agents’ propensity for narrow framing.

Markowitz and Sharpe won the Nobel Prize in Economics more than a decade ago for the development of Mean-Variance analysis and the Capital Asset Pricing Model (CAPM). In the year2002, Kahneman won the Nobel Prize in Economics for the development of Prospect Theory....

Under the assumption of normally distributed returns, we analyzewhether the Cumulative Prospect Theory of Tversky and Kahneman (1992) is consistent with the Capital Asset Pricing Model. We find that in every financial market equilibrium the Security Market Line Theorem holds....

Experimental stock markets are used to add some more evidence that Blacks (1976) leverage effect in financial markets does not necessarily stem from the financial leverage of the firm. We surprisingly find a large number of markets in which the leverage effect is observed although the underlying...

Markowitz and Sharpe won the Nobel Prize in Economics more than a decade ago for the development of Mean-Variance analysis and the Capital Asset Pricing Model (CAPM). In the year 2002, Kahneman won the Nobel Prize in Economics for the development of Prospect Theory. Can these two apparently...

As early as 1934 Graham and Dodd conjectured that excess returns from value investment originate from a tendency of markets to converge towards fundamental values. This paper confirms their insights theoretically within the evolutionary finance model of Evstigneev, Hens, and Schenk-Hopp (2006)...