Bounded rationality,anchoring-and-adjustment sentiment,and asset pricing |
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| Affiliation: | 1. School of Economics and Commerce, South China University of Technology, Guangzhou, China;2. School of Economics, Shenzhen Polytechnic, Shenzhen, China;1. Department of Applied Economics, Fo Guang University, Yilan, Taiwan;2. Department of Economics, Feng Chia University, Taichung, Taiwan;3. Department of Leisure Management, Tungnan University, Taipei, Taiwan;1. School of Securities and Futures, Southwestern University of Finance and Economics, Chengdu 611130, China;2. The Wang Yanan Institute for Studies in Economics, Xiamen University, Xiamen, Fujian 361005, China;1. School of Finance, Southwestern University of Finance and Economics, Chengdu 611130, China;2. Shanghai Lixin University of Accounting and Finance, Shanghai 201620, China;3. School of Business Administration, University of Dayton, Dayton, OH 45469, USA |
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| Abstract: | This paper presents a framework that incorporates an investor’s limited attention and anchoring and adjustment sentiment and their joint effects on asset pricing, with endogenous cost of neglecting part of the dividends and the asymmetric rationality levels of investors. We find that the combined effect of the two bounded rationality factors is often embodied in the “loss”, and the retail investors are insensitive to market sentiment and forced to pay more cognitive loss. A higher level of investor rationality and bullish market sentiment will jointly increase demand and then prices, while the effects of different bounded rationality factors are asymmetric. |
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| Keywords: | Bounded rationality Limited attention Anchoring and adjustment Sentiment Asset pricing |
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