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Prospect theory for stock markets: Empirical evidence with time-series data

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  • Zhang, Wenlang
  • Semmler, Willi

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.

Suggested Citation

  • Zhang, Wenlang & Semmler, Willi, 2009. "Prospect theory for stock markets: Empirical evidence with time-series data," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 835-849, December.
    • Handle: RePEc:eee:jeborg:v:72:y:2009:i:3:p:835-849
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