The capital asset pricing model in the 21st century : analytical, empirical, and behavioral perspectives
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Bibliographic Information
The capital asset pricing model in the 21st century : analytical, empirical, and behavioral perspectives
Cambridge University Press, 2012
- : pbk
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Includes bibliographical references (p. 405-414) and indexes
Summary: "Project Theory and the classical models in finance (e.g., the CAPM) seemingly contradict each other, creating a teachin and a research dilemma to professors in finanace and econommics, This tension is particualrly strong for professors who teach both the CAPM and behavioral finance. This book bridges between Prospect Theory and the Classical Models in finance showing that there is no contradictions between them"-- Provided by publisher
Description and Table of Contents
Description
The Capital Asset Pricing Model (CAPM) and the mean-variance (M-V) rule, which are based on classic expected utility theory, have been heavily criticized theoretically and empirically. The advent of behavioral economics, prospect theory and other psychology-minded approaches in finance challenges the rational investor model from which CAPM and M-V derive. Haim Levy argues that the tension between the classic financial models and behavioral economics approaches is more apparent than real. This book aims to relax the tension between the two paradigms. Specifically, Professor Levy shows that although behavioral economics contradicts aspects of expected utility theory, CAPM and M-V are intact in both expected utility theory and cumulative prospect theory frameworks. There is furthermore no evidence to reject CAPM empirically when ex-ante parameters are employed. Professionals may thus comfortably teach and use CAPM and behavioral economics or cumulative prospect theory as coexisting paradigms.
Table of Contents
- 1. Overview
- 2. Expected utility theory
- 3. Expected utility and investment decision rules
- 4. The mean-variance rule
- 5. The capital asset pricing model (CAPM)
- 6. Extensions of the CAPM
- 7. The CAPM cannot be rejected: empirical and experimental evidence
- 8. Theoretical and empirical criticisms of the M-V rule
- 9. Prospect theory and expected utility
- 10. Cumulative decision weights: no dominance violation
- 11. M-V rule, the CAPM, and the cumulative prospect theory: coexistence.
by "Nielsen BookData"
