Prospect theory and fat tails

Philip Maymin

Research output: Contribution to journalArticle

Abstract

A behavioral representative investor who evaluates a single risky asset based on cumulative prospect theory will often induce high kurtosis, negative skewness, and persistent autocorrelation into the distribution of market returns even if the asset payoffs are merely a sequence of independent coin tosses. These findings continue to hold even when the investor is simply loss averse.

Original languageEnglish (US)
Pages (from-to)187-195
Number of pages9
JournalRisk and Decision Analysis
Volume1
Issue number3
DOIs
StatePublished - 2009

Fingerprint

Cumulative Prospect Theory
Prospect Theory
Fat Tails
Kurtosis
Skewness
Autocorrelation
Continue
Evaluate
Market
Investors
Prospect theory
Assets
Fat tails

Keywords

  • behavioral
  • fat tails
  • kurtosis
  • Loss aversion
  • prospect theory

ASJC Scopus subject areas

  • Statistics, Probability and Uncertainty
  • Economics and Econometrics
  • Finance
  • Statistics and Probability

Cite this

Prospect theory and fat tails. / Maymin, Philip.

In: Risk and Decision Analysis, Vol. 1, No. 3, 2009, p. 187-195.

Research output: Contribution to journalArticle

Maymin, Philip. / Prospect theory and fat tails. In: Risk and Decision Analysis. 2009 ; Vol. 1, No. 3. pp. 187-195.
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