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Salience and Asset Prices

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  • Pedro Bordalo
  • Nicola Gennaioli
  • Andrei Shleifer

Abstract

We present a simple model of asset pricing in which payoff salience drives investors' demand for risky assets. The key implication is that extreme payoffs receive disproportionate weight in the market valuation of assets. The model accounts for several puzzles in finance in an intuitive way, including preference for assets with a chance of very high payoffs, an aggregate equity premium, and countercyclical variation in stock market returns.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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  • Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, "undated". "Salience and Asset Prices," Working Paper 69726, Harvard University OpenScholar.
    • Handle: RePEc:qsh:wpaper:69726
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    File URL: http://scholar.harvard.edu/shleifer/node/69726
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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