| Research Papers |
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| Existence of CAPM Equilibria with Prospect Theory Preferences |
Enrico De Giorgi, Thorsten Hens, Haim Levy
First Draft: June 27, 2003
This Version: March 16, 2004 |
| Abstract: |
| Under the assumption of normally distributed returns, we analyze whether the Cumulative Prospect Theory of Tversky and Kahneman (1992) is consistent with the Capital Asset Pricing Model. We find that in every financial market equilibrium the Security Market Line Theorem holds. However, under the functional form for the utility index suggested by Tversky and Kahneman (1992) financial market equilibria do not exist. We suggest an alternative functional form that is consistent with both, the experimental results of Tversky and Kahneman and also with the existence of equilibria. |
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| Behavioral und Evolutionary Finance: Die Neue Sicht auf die Finanzmärkte |
Prof. Dr. Thorsten Hens
4. März 2003 |
| Kurzfassung: |
Das Ziel dieses Artikels ist, einen Einblick in die Erkenntnisse der Behavioral und der Evolutionary Finance zu
geben. Diese neue Sicht der Finanzmärkte hat sich im letzten Jahrzehnt als Gegenthese zum traditionellen
Finance etabliert. Während das traditionelle Finance auf der vollkommenen Rationalität der Entscheidungsträger
beruht, betont das Behavioral Finance die Psychologie der Investoren. Hierdurch gelingt es, einige Puzzles des
traditionellen Finance zu klären. Aus der neuen Sicht des Finance ergeben sich zudem vielfältige Anwendungsmöglichkeiten, welche im Portfoliomanagement umgesetzt werden können. Wie die Evolutionary Finance zeigt, verschenken Portfoliomanager, die diese Erkenntnisse ignorieren, Gewinnmöglichkeiten und sie drohen im Wettbewerb um Marktkapital zurückzufallen. |
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| Rational Investor Sentiment |
Anke Gerber, Thorsten Hens, Bodo Vogt
December 2002 |
| Abstract: |
| We explain excess volatility, short-term momentum and long-term reversal of asset prices by a repeated game version of Keynes’ beauty contest. In every period the players can either place a buy or sell order on the asset market. The actual price movement is determined by average market orders and noise. It is common knowledge that the noise process is an exogenous random walk. Our model explains short-term momentum and long-term reversal of stock prices by unpredictable switches in the coordination of the players. When the players are coordinated on buying (selling), we say the market is in the up (down) mood. In this model changing investor sentiment is a rational strategy as it leads to a Nash equilibrium of the coordination game. We give experimental evidence in support of our claims. |
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| Soft landing of a stock market bubble. An experimental study. |
Ralf Becker, Urs Fischbacher, Thorsten Hens
February 2002 |
| Abstract |
The paper investigates the effect of interest policy on price bubbles, trading behavior and portfolio choice in experimental stock markets. A series of experiments has 8 participants trade an asset over 15 periods.
Alternatively, the participants can invest money in interest-bearing bonds. Treatment groups are subjected to an endogenous interest policy, while control groups experience a constant interest rate. Our stock markets are
characterized by bubbles. While we observe a small positive impact of our interest policy on bubbles, the policy also strongly increases market volatility. On the other hand, concerning portfolio choice, we find evidence for value-driven (rational) investment behavior. |
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