This paper studies the wealth and pricing implications of loss aversion in the presence of arbitrageurs with Epstein …-Zin preferences. Loss aversion affects an investor's survival prospects mainly through its effect on the investor's portfolio holdings …. Loss-averse investors will be driven out of the market and do not affect long-run prices if their portfolio positions are …

This paper considers a general-equilibrium model with loss-aversion in consumption and heterogeneity: there is a … discrete number of agents. Loss-aversion in consumption induces a kink in the pricing kernel and consequently, jumps in the … market price of risk, stock return, and volatility. An economy populated with only loss-averse agents produces one counter …

-pricing economy. Expectations-based loss aversion increases the equity premium and decreases the consumption-wealth ratio, because … painful, the agent wants to postpone such cuts to let his reference point decrease. Thus, even though shocks are i.i.d., loss …