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.

Salience and asset prices

Bordalo, Pedro;Gennaioli, Nicola;Shleifer, Andrei
2013

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.
2013
Bordalo, Pedro; Gennaioli, Nicola; Shleifer, Andrei
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3853096
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