Regret theory and equilibrium asset prices
type: Item
instance of: scholarly article
title: Regret theory and equilibrium asset prices
zbMATH Open document ID: 1407.91121
DOI: 10.1155/2014/912652
author: Jiliang Sheng
author: Jun Yang
author: Ji'an Wang
published in: Mathematical Problems in Engineering
publication date: 2019-02-08T00:00:00Z
review text: Summary: Regret theory is a behavioral approach to decision making under uncertainty. In this paper we assume that there are two representative investors in a frictionless market, a representative active investor who selects his optimal portfolio based on regret theory and a representative passive investor who invests only in the benchmark portfolio. In a partial equilibrium setting, the objective of the representative active investor is modeled as minimization of the regret about final wealth relative to the benchmark portfolio. In equilibrium this optimal strategy gives rise to a behavioral asset priciting model. We show that the market beta and the benchmark beta that is related to the investor's regret are the determinants of equilibrium asset prices. We also extend our model to a market with multibenchmark portfolios. Empirical tests using stock price data from Shanghai Stock Exchange show strong support to the asset pricing model based on regret theory.
Mathematics Subject Classification ID: 91B25
Mathematics Subject Classification ID: 91B24
zbMATH DE Number: 7017587
Wikidata QID: Q59070675
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2014/912652
OpenAlex ID: W2069015676
cites work: Advances in prospect theory: cumulative representation of uncertainty
cites work: Prospect theory and asset prices
cites work: Regret in Decision Making under Uncertainty
cites work: Measuring and forecasting volatility in Chinese stock market using HAR-CJ-M model
description: scientific article; zbMATH DE number 7017587