Loss aversion, survival and asset prices

Easley, D; Yang, L

Loss aversion, survival and asset prices

Easley, D Yang, L

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Publication Type:: Journal Article
Citation:: Journal of Economic Theory, 2015, 160 pp. 494 - 516
Issue Date:: 2015-12-01

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Field	Value	Language
dc.contributor.author	Easley, D	en_US
dc.contributor.author	Yang, L	en_US
dc.date.issued	2015-12-01	en_US
dc.identifier.citation	Journal of Economic Theory, 2015, 160 pp. 494 - 516	en_US
dc.identifier.issn	0022-0531	en_US
dc.identifier.uri	http://hdl.handle.net/10453/121922
dc.description.abstract	© 2015 Elsevier Inc. 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 further away from those corresponding to the log investor than arbitrageurs. In terms of wealth shares, the market selection process can be slow, but the selection force is nonetheless effective in terms of price impact, which highlights the importance of introducing preference heterogeneity in understanding asset prices.	en_US
dc.relation.ispartof	Journal of Economic Theory	en_US
dc.relation.isbasedon	10.1016/j.jet.2015.08.013	en_US
dc.subject.classification	Economic Theory	en_US
dc.title	Loss aversion, survival and asset prices	en_US
dc.type	Journal Article
utslib.citation.volume	160	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1499 Other Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.publication-status	Published	en_US
pubs.volume	160	en_US

Abstract:

© 2015 Elsevier Inc. 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 further away from those corresponding to the log investor than arbitrageurs. In terms of wealth shares, the market selection process can be slow, but the selection force is nonetheless effective in terms of price impact, which highlights the importance of introducing preference heterogeneity in understanding asset prices.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/121922