Abstract

http://ssrn.com/abstract=687790
 
 

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Introduction to Review of Financial Studies Conference on Market Frictions and Behavioral Finance


John Heaton


University of Chicago - Finance

Robert A. Korajczyk


Northwestern University - Kellogg School of Management


Review of Financial Studies, Vol. 15, No. 2, pp. 353-361, 2002

Abstract:     
A significant fraction of research by financial economists over the last few decades has attempted to understand various anomalous or puzzling empirical observations taken from financial markets. These range from the equity premium puzzle at the aggregate level, to the small firm effect, to moment in returns, and to post-event abnormal returns at the level of individual stock and portfolio returns. In each case these empirical puzzles are identified by finding portfolios with average returns that are high relative to their risk as measured by the covariance of the returns with the market portfolio, as in the CAPM, or with aggregate consumption, as in the consumption-based CAPM. If the assumptions about market structure and the behavior of agents justifying the models are correct, then return observations imply that agents should trade to take advantage of the observed patterns in returns. There have been essentially three types of explanations put forward for why agents don't take advantage of the anomalies.

Number of Pages in PDF File: 15

Keywords: Market Frictions, Behavioral Finance, Liquidity

JEL Classification: G1, G3

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Date posted: April 14, 2005 ; Last revised: December 16, 2009

Suggested Citation

Heaton, John and Korajczyk, Robert A., Introduction to Review of Financial Studies Conference on Market Frictions and Behavioral Finance. Review of Financial Studies, Vol. 15, No. 2, pp. 353-361, 2002. Available at SSRN: http://ssrn.com/abstract=687790

Contact Information

John C Heaton (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
Robert A. Korajczyk
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)
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