Salience and Asset Prices
Pedro Bordalo, Nicola Gennaioli, Andrei Shleifer
American Economic Review · 2013 · Volume 103 · Issue 3
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.
Keywords
Personal Finance, Portfolio Choice, Investment Decisions, Asset Pricing, Trading volume, Bond Interest Rates
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