Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2005/20:
Prospect Theory and the Size and Value Premium Puzzles
Enrico De Giorgi ()
, Thorsten Hens ()
and Thierry Post ()
Abstract: Using canonical data for the US stock and bond markets, we
show that the kinked piecewise exponential value function can rationalize
the cross-section of stock returns in addition to the level of the equity
premium, while the kinked piecewise-power value function of Tversky and
Kahneman can explain only the latter.
Keywords: Prospect Theory; Premium Puzzles; (follow links to similar papers)
JEL-Codes: G00; (follow links to similar papers)
9 pages, December 22, 2005
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