X-CAPM: An Extrapolative Capital Asset Pricing Model / Nicholas Barberis, Robin Greenwood, Lawrence Jin, Andrei Shleifer.

Format:

Book

Author/Creator:

Barberis, Nicholas.

Contributor:

National Bureau of Economic Research.

Greenwood, Robin.

Jin, Lawrence.

Shleifer, Andrei.

Series:

Working Paper Series (National Bureau of Economic Research) no. w19189.

NBER working paper series no. w19189

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns: they expect the stock market to perform well (poorly) in the near future if it performed well (poorly) in the recent past. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns, but is also consistent with the survey evidence on investor expectations. This suggests that the survey evidence does not need to be seen as an inconvenient obstacle to understanding the stock market; on the contrary, it is consistent with the facts about prices and returns, and may be the key to understanding them.

Notes:

Print version record

June 2013.