Investor Psychology and Asset Pricing

  • Author(s): David Hirshleifer
  • Published: Dec 17, 2002
  • Pages: 1533-1597
  • DOI: 10.1111/0022-1082.00379

The basic paradigm of asset pricing is in vibrant flux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for understanding decision biases, evaluates the a priori arguments and the capital market evidence bearing on the importance of investor psychology for security prices, and reviews recent models.

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