Does risk seeking drive stock prices? A stochastic dominance analysis of aggregate investor preferences and beliefs

• 成果类型: Article
• 署名作者: Post, T; Levy, H
• 署名单位: Erasmus University Rotterdam - Excl Erasmus MC; Erasmus University Rotterdam; Hebrew University of Jerusalem
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhi021
• 发表日期: 2005
• 页码: 925
• 关键词: PROSPECT-THEORY; equity premium; utility-theory; cross-section; loss aversion; skewness; returns

摘要

We use various stochastic dominance criteria that account for (local) risk seeking to analyze market portfolio efficiency relative to benchmark portfolios formed on market capitalization, book-to-market equity ratio and price momentum. Our results suggest that reverse S-shaped utility functions with risk aversion for losses and risk seeking for gains can explain stock returns. The results are also consistent with a reverse S-shaped pattern of subjective probability transformation. The low average yield on big caps, growth stocks, and past losers may reflect investors' twin desire for downside protection in bear markets and upside potential in bull markets.