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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Lawrence Jin

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June 2013X-CAPM: An Extrapolative Capital Asset Pricing Model
with Nicholas Barberis, Robin Greenwood, Andrei Shleifer: w19189
Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns: they expect the stock market to perform well (poorly) in the near future if it performed well (poorly) in the recent past. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns, but is also consistent with the survey evidence on investor expectations. This suggests that the survey evidence does not need to be seen as an inconvenient obstacle to u...

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
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