Publication Type
Working Paper
Version
publishedVersion
Publication Date
9-2004
Abstract
Behavioral finance and classical finance based on utility maximization appear to be mutually exclusive schools of thought. Despite the fundamental difference, we show that behavioral finance also has a linear relation between risk and return. This relation is obtained without the assumptions of market equilibrium, rational expectations, a specific utility function and the market portfolio. In the behavioral approach, the pricing error of CAPM is not an error. It is attributable to the higher-order moments of return. Empirical tests suggest that the relative risk aversion coefficient is positive and time-varying. Moreover, it correlates negatively with both volatility and return.
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Citation
Ting, Hian Ann, Christopher.
Risk, Return and Risk Aversion: A Behavioral Rendition. (2004).
Available at: https://ink.library.smu.edu.sg/lkcsb_research/2338
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.