X-CAPM: An Extrapolative Capital Asset Pricing Model

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X-CAPM: An Extrapolative Capital Asset Pricing Model

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Title: X-CAPM: An Extrapolative Capital Asset Pricing Model
Author: Barberis, Nicholas; Greenwood, Robin Marc; Jin, Lawrence; Shleifer, Andrei

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Citation: Barberis, Nicholas, Robin Marc Greenwood, Lawrence Jin, and Andrei Shleifer. 2013. X-CAPM: An Extrapolative Capital Asset Pricing Model. National Bureau of Economic Research Working Paper 19189: 1-61.
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Abstract: Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns; importantly, however, it is also consistent with the survey evidence on investor expectations.
Published Version: http://www.nber.org/papers/w19189
Other Sources: http://ssrn.com/abstract=2287047
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:11880389
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