Prospect Theory and the Size and Value Premium Puzzles

10 Pages Posted: 13 Mar 2007

See all articles by Enrico G. De Giorgi

Enrico G. De Giorgi

University of St. Gallen - SEPS: Economics and Political Sciences

Thorsten Hens

University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute

Thierry Post

Graduate School of Business of Nazarbayev University

Date Written: December 22, 2005

Abstract

Using canonical data for the US stock and bond markets, we show that the kinked piecewise exponential value function can rationalize the cross-section of stock returns in addition to the level of the equity premium, while the kinked piecewise-power value function of Tversky and Kahneman can explain only the latter.

Suggested Citation

De Giorgi, Enrico G. and Hens, Thorsten and Post, Thierry, Prospect Theory and the Size and Value Premium Puzzles (December 22, 2005). NHH Finance & Management Science Discussion Paper No. 20/2005, Available at SSRN: https://ssrn.com/abstract=970470 or http://dx.doi.org/10.2139/ssrn.970470

Enrico G. De Giorgi

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

Department of Economics
Bodanstrasse 6
CH-9000 St. Gallen
Switzerland
+41712242430 (Phone)

Thorsten Hens (Contact Author)

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

Plattenstrasse 32
Zurich, 8032
Switzerland
+41-44 634 37 06 (Phone)

Norwegian School of Economics and Business Administration (NHH)

Helleveien 30
Bergen, 5045
Norway

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Thierry Post

Graduate School of Business of Nazarbayev University ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

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