Beta, value, and growth: Do dichotomous risk-preferences explain stock returns?

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

I propose a Capital Asset Pricing Model in which investor demand exhibits a speculative component. In equilibrium, investors' optimal trade-off between diversification and speculation generates predictable patterns for stocks with extreme book-to-market ratios. Using data on U.S. stocks, I find evidence consistent with the model predictions. I show that the value premium varies with investors’ propensity to speculate, and therefore includes a substantial behavioral component. Overall, the findings shed new light on the role of dichotomous risk-preferences in asset pricing.
Original languageEnglish
Article number100834
Pages (from-to)1-17
Number of pages17
JournalJournal of Behavioral and Experimental Finance
Volume39
DOIs
Publication statusPublished - Sept 2023

Bibliographical note

Publisher Copyright:
© 2023 The Author(s)

Keywords

  • Beta
  • Business cycle
  • Speculative demand
  • Value premium

Fingerprint

Dive into the research topics of 'Beta, value, and growth: Do dichotomous risk-preferences explain stock returns?'. Together they form a unique fingerprint.

Cite this