The Popularity Asset Pricing Model
36 Pages Posted: 19 Sep 2019 Last revised: 12 May 2020
Date Written: May 11, 2020
The Popularity Asset Pricing Model (PAPM) builds on the familiar Capital Asset Pricing Model (CAPM), but relaxes key CAPM assumptions. In the PAPM, investors do not have to be rational, can have risk and non-risk preferences, and have heterogeneous expectations about security returns. By incorporating multiple investor preferences and allowing for diverse investor forecasts, the PAPM takes two major steps towards asset pricing in the real world. The PAPM is nevertheless simple and intuitive, serving as a general umbrella model encompassing not only the CAPM as a special case, but also many other classical and behavioral asset pricing models.
Keywords: popularity, asset pricing theory, CAPM, heterogeneous expectations, behavioral finance, portfolio selection
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