We consider the demand for state contingent claims in the presence of a zero-mean, nonhedgeable background risk. An agent is defined to be generalized risk averse if he/she reacts to an increase in background risk by choosing a demand function for contingent claims with a smaller slope. We show...

Anchoring bias (AB) measured at the end of each month by the absolute slope coefficient of a 1-year rolling window regressing relative net purchase ratio on a 52-week high ratio, significantly and negatively predicts 1-months-ahead stock returns both in-sample and out-of-sample. We show...