Salience and Asset Prices

Bordalo, Pedro, Gennaioli, Nicola and Shleifer, Andrei (2013) Salience and Asset Prices. American Economic Review, 103 (3). pp. 623-628.

Abstract

We present a simple model of asset pricing in which payoff salience drives investors' demand for risky assets. The key implication is that extreme payoffs receive disproportionate weight in the market valuation of assets. The model accounts for several puzzles in finance in an intuitive way, including preference for assets with a chance of very high payoffs, an aggregate equity premium, and countercyclical variation in stock market returns.

Item Type: Article
Keywords: finance
Subject(s): Finance
Date Deposited: 11 Jul 2016 14:56
Last Modified: 27 Mar 2017 15:15
Funders: not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6182

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