Barberis, NicholasGreenwood, RobinJin, LawrenceShleifer, Andrei2014-03-122013Barberis, 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.http://nrs.harvard.edu/urn-3:HUL.InstRepos:11880389Survey 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.en-USResearch Paper or Report2014-02-262014-03-12