Capitalizing on prospect theory value: The Asian developed stock markets |
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Institution: | 1. Cabinet Office, Nagatacho 1-6-1 Chiyoda-ku, Tokyo, Japan;2. Institute of Economic Research, Hitotsubashi University, Naka 2-1 Kunitachi-shi, Tokyo, Japan;1. Institute of World Economics and Politics, Graduate School of Chinese Academy of Social Sciences, China;2. School of Finance, Central University of Finance and Economics, China |
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Abstract: | This study shows that a stock whose past return distribution has a high (low) prospect theory value earns a low (high) subsequent return in the stock markets in Hong Kong and Singapore as well as in Japan. In addition, it investigates whether appropriate components of the value function and the probability weighting function that capitalize on prospect theory value are different across countries due to the different risk attitudes of investors. The parameter estimates show that each stock market has different cumulative prospect theory parameters for better performance, and the level of loss aversion for each market is lower than the original values offered by Tversky and Kahneman (1992). |
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Keywords: | Cumulative prospect theory Value function Probability weighting function Degree of loss aversion Asian developed stock markets |
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