A Note on Myopic Loss Aversion and the Equity Premium Puzzle

Finance Research Letters, Vol. 4, No. 2, pp. 127-136, 2007

Posted: 30 Oct 2009

See all articles by Stefan Zeisberger

Stefan Zeisberger

Radboud University, Institute for Management Research; University of Zurich, Department of Banking and Finance

Thomas Langer

University of Muenster - Finance Center

Mark M. Trede

University of Muenster - Faculty of Economics

Date Written: 2007

Abstract

In 1995, Benartzi and Thaler introduced the concept myopic loss aversion to explain the equity premium puzzle. They provided empirical evidence to support their arguments. Recently, Durand, et al. criticized this empirical analysis. They propose an approach which not only rejects the significance of the earlier findings but also suggests a reversal of the original findings. In contrast to their approach, we implement a bootstrap approach and find results in line with the results of Benartzi and Thaler. We further show that the significance of the effect strongly depends on somewhat arbitrary assumptions about the length of data history.

Keywords: Equity premium, Prospect theory

JEL Classification: C12, D81, D83, G11

Suggested Citation

Zeisberger, Stefan and Langer, Thomas and Trede, Mark M., A Note on Myopic Loss Aversion and the Equity Premium Puzzle (2007). Finance Research Letters, Vol. 4, No. 2, pp. 127-136, 2007, Available at SSRN: https://ssrn.com/abstract=1495610

Stefan Zeisberger (Contact Author)

Radboud University, Institute for Management Research ( email )

Nijmegen
Netherlands

University of Zurich, Department of Banking and Finance ( email )

Z├╝rich
Switzerland

Thomas Langer

University of Muenster - Finance Center ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany
+49 251 83 22033 (Phone)

Mark M. Trede

University of Muenster - Faculty of Economics ( email )

Universit├Ątsstr. 14-16
48143 Munster
Germany

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