Tuesday, December 10, 2013
4:00 pm
Baxter 25

Ulric B. and Evelyn L. Bray Seminar

X-CAPM: An Extrapolative Capital Asset Pricing Model
Lawrence Jin, Ph.D. Student, School of Management, Yale University

Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns.  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 price and returns; importantly, however, it is also consistent with the survey evidence on investor expectations.

Contact Barbara Estrada bestrada@hss.caltech.edu at Ext. 4083
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