Merton has suggested that theory needs to accommodate the fact that investors maximize relative (wealth divided by the …

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 … are the only possible explanations of the “anomalies”, but offer statistical models within the rational theory of finance …

We develop a new asset pricing theory that bridges two seemingly unrelated anomalies: (1) the negative relationship …-selling constraints. Our theory further predicts that skewness and dispersion have an interactive pricing impact. We find support for this …

temporary increase in its CAPM beta estimate and a decrease in its CAPM alpha. The increasing effect of breadth of ownership on …-driven components of beta estimates that we find contribute to the empirical failure of the CAPM and the large returns to long …

annual US stock price data from 1871 until 2003. The estimation results support the existence of two expectation regimes. One …

future returns is consistent with theory, which predicts the marginal utility of consumption to rise when ambiguity is high …