Prospect theory for stock markets: Empirical evidence with time-series data |
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| Institution: | 1. Research Center SAFE, Johann Wolfgang Goethe-University, House of Finance, Theodor-W.- Adorno Platz 3, 60323 Frankfurt am Main, Germany;2. Portsmouth Business School, Richmond Building Portland Street Portsmouth PO1 3DE, United Kingdom;1. Durham University Business School, UK;2. Worcester Polytechnic Institute, USA;1. School of Economics and Management, Fuzhou university, Fuzhou, PR China;2. Business School of Hunan university, Changsha, PR China;1. School of Accounting and Finance, Hong Kong Polytechnic University, Kowloon, Hong Kong;2. School of Business, Deakin University, Melbourne, Australia;3. College of Business, Zayed University, UAE |
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| Abstract: | Based on the loss aversion model of asset pricing, this paper explores empirical evidence on the prospect theory for stock markets with time-series data. The analysis, using a state-space model, shows that previous gains and losses may have asymmetric effects on investment behavior, pointing to the possibility of break-even effects ignored by asset-pricing models using prospect theory. |
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