NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

X-CAPM: An Extrapolative Capital Asset Pricing Model

Nicholas Barberis, Robin Greenwood, Lawrence Jin, Andrei Shleifer

NBER Working Paper No. 19189
Issued in June 2013
NBER Program(s):AP

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 understanding the stock market; on the contrary, it is consistent with the facts about prices and returns, and may be the key to understanding them.

download in pdf format
   (371 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19189

Published: Barberis, Nicholas & Greenwood, Robin & Jin, Lawrence & Shleifer, Andrei, 2015. "X-CAPM: An extrapolative capital asset pricing model," Journal of Financial Economics, Elsevier, vol. 115(1), pages 1-24. citation courtesy of

Users who downloaded this paper also downloaded* these:
Greenwood and Shleifer w18686 Expectations of Returns and Expected Returns
Campbell, Giglio, Polk, and Turley w18411 An Intertemporal CAPM with Stochastic Volatility
Cortazar, Kovacevic, and Schwartz w19167 Commodity and Asset Pricing Models: An Integration
Aizenman and Jinjarak w19190 Real Estate Valuation, Current Account and Credit Growth Patterns, Before and After the 2008-9 Crisis
Barberis w18621 Thirty Years of Prospect Theory in Economics: A Review and Assessment
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us