Disappointment aversion and the equity premium puzzle: new international evidence

Xie, Yuxin, Florakis, Chris ORCID: 0000-0002-1290-4168 and Pantelous, Thanasi (2014) Disappointment aversion and the equity premium puzzle: new international evidence. The European Journal of Finance, 22 (12). pp. 1189-1203.

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Official URL: https://www.tandfonline.com/doi/full/10.1080/13518...

Abstract

Drawing upon the seminal study of Ang, Bekaert, and Liu [2005. “Why Stock May Disappoint?” Journal of Financial Economics 76 (3): 471–508], we incorporate disappointment aversion (DA, that is, aversion to outcomes that are worse than prior expectations) within a simple theoretical portfolio-choice model. Based on the results of this model, we then empirically address the portfolio allocation problem of an investor who chooses between a risky and a risk-free asset using international data from 19 countries. Our findings strongly support the view that DA leads investors to reduce their exposure to the stock market (i.e. DA significantly depresses the portfolio weights on equities in all cases considered). Overall, our study shows that in addition to risk aversion, DA plays an important role in explaining the equity premium puzzle around the world.

Item Type:	Article
Additional Information:	## TULIP Type: Articles/Papers (Journal) ##
Uncontrolled Keywords:	risk aversion, disappointment aversion, portfolio choice, equity risk premium, downside risk
Subjects:	?? HG ??
Depositing User:	Symplectic Admin
Date Deposited:	21 Apr 2016 10:38
Last Modified:	16 Dec 2022 01:28
DOI:	10.1080/1351847X.2014.946529
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3000313