A Behavioral Approach to Asset Pricing (Academic Press Advanced Finance Series) - Hardcover

Shefrin

Hardcover

ISBN 10: 0123743567 ISBN 13: 9780123743565

Publisher: Academic Press, 2008

Synopsis

A Behavioral Approach to Asset Pricing Behavioral finance is the study of how psychology affects financial decision making and financial markets. This book examines the reigning assumptions of asset pricing theory and reconstructs them to incorporate findings from behavioral finance. It is accompanied by a website which contains a series of examples worked out as Excel spreadsheets.

About this title

Review:

Based on all the latest research and theory, this book provides the most up-to-date and comprehensive discussion of how psychology affects market activity.

From the Back Cover:

“A mathematical-economist-turned-behavioral-economist, Hersh Shefrin challenges and delights the reader by applying concepts of behavioral economics with emphasis on investor heterogeneity to revisit a broad spectrum of topics in finance including portfolio management, trading, and the pricing of equities, bonds and options.?
George M. Constantinides, Leo Melamed Professor of Finance, The University of Chicago Graduate School of Business

“The flood of empirical asset pricing research in recent years has often required financial economists to choose between two unpalatable options: either embrace the rich range of evidence with a somewhat atheoretical view; or, simply ignore that large portion of the evidence that conflicts with classical asset pricing theory. The behavioral finance pioneer Hersh Shefrin, in this new edition of his treatise, shows that one need not choose between theory and data. He shows that a number of seemingly "behavioral" patterns in the data can in fact be derived from a suitably modified version of the stochastic discount factor framework. Impressive in both scope and attention to detail, this book will be valuable for researchers, teachers, students, and investment professionals.?
Jeffrey Wurgler, Research Professor of Finance, NYU Stern School of Business

“Judging from the large volume of trade in the financial markets and the astounding volatility of prices, one has to accept the idea that investors hold divergent and fast fluctuating beliefs. For this to make sense, I see only two possible hypotheses. Both individual and professional investors receive a lot of information — some of it public but a lot more of it private — on which they act. Or they all receive similar information but each one interprets that information somewhat differently from the other. Although it is not quite rational, I find the latter behaviour more plausible than the former. A large part of the second edition of A Behavioral Approach to Asset Pricing is devoted to developing this arresting, although by no means mainstream, hypothesis. In that endeavour, Professor Shefrin is a maverick and a pioneer.?
—Bernard Dumas, Professor of Finance, Swiss Finance Institute, Université de Lausanne, Switzerland

Praise for the First Edition:
“This book provides a much-needed bridge between behavioral finance and traditional asset pricing theory, so that the insights that the two fields offer can complement each other. This book will make the theory of behavioral finance far more useful and broadly applicable.?
—Robert Shiller, Cowles Foundation for Research in Economics, International Center for Finance, Yale University

Incorporating the latest theory and empirical research, the second edition of A Behavioral Approach to Asset Pricing provides the most up-to-date and comprehensive discussion of how psychology affects market activity. The key message remains: that the future of asset pricing theory lies in bringing together the powerful SDF-based tools adopted by neoclassical asset pricing theorists and the more realistic assumptions adopted by behavioral asset pricing theorists. The most important equation in the first edition is the decomposition of the log-SDF into sentiment and a fundamental component. In the second edition, Shefrin extends the analysis to demonstrate how this equation can be generalized to encompass the combination of behavioral preferences and behavioral beliefs. This generalization provides a unified approach that ties together the main ideas in the book.

The book is supported by a companion website, which contains examples worked out as Excel spreadsheets so that readers can input their own data to test the results.

Hersh Shefrin is Mario L. Belotti Professor of Finance, Leavey School of Business, Santa Clara University, CA, USA|“A mathematical-economist-turned-behavioral-economist, Hersh Shefrin challenges and delights the reader by applying concepts of behavioral economics with emphasis on investor heterogeneity to revisit a broad spectrum of topics in finance including portfolio management, trading, and the pricing of equities, bonds and options.
George M. Constantinides, Leo Melamed Professor of Finance, The University of Chicago Graduate School of Business

“The flood of empirical asset pricing research in recent years has often required financial economists to choose between two unpalatable options: either embrace the rich range of evidence with a somewhat atheoretical view; or, simply ignore that large portion of the evidence that conflicts with classical asset pricing theory. The behavioral finance pioneer Hersh Shefrin, in this new edition of his treatise, shows that one need not choose between theory and data. He shows that a number of seemingly "behavioral" patterns in the data can in fact be derived from a suitably modified version of the stochastic discount factor framework. Impressive in both scope and attention to detail, this book will be valuable for researchers, teachers, students, and investment professionals.
Jeffrey Wurgler, Research Professor of Finance, NYU Stern School of Business

“Judging from the large volume of trade in the financial markets and the astounding volatility of prices, one has to accept the idea that investors hold divergent and fast fluctuating beliefs. For this to make sense, I see only two possible hypotheses. Both individual and professional investors receive a lot of information — some of it public but a lot more of it private — on which they act. Or they all receive similar information but each one interprets that information somewhat differently from the other. Although it is not quite rational, I find the latter behaviour more plausible than the former. A large part of the second edition of A Behavioral Approach to Asset Pricing is devoted to developing this arresting, although by no means mainstream, hypothesis. In that endeavour, Professor Shefrin is a maverick and a pioneer.
—Bernard Dumas, Professor of Finance, Swiss Finance Institute, Université de Lausanne, Switzerland

Praise for the First Edition:
“This book provides a much-needed bridge between behavioral finance and traditional asset pricing theory, so that the insights that the two fields offer can complement each other. This book will make the theory of behavioral finance far more useful and broadly applicable.
—Robert Shiller, Cowles Foundation for Research in Economics, International Center for Finance, Yale University

Incorporating the latest theory and empirical research, the second edition of A Behavioral Approach to Asset Pricing provides the most up-to-date and comprehensive discussion of how psychology affects market activity. The key message remains: that the future of asset pricing theory lies in bringing together the powerful SDF-based tools adopted by neoclassical asset pricing theorists and the more realistic assumptions adopted by behavioral asset pricing theorists. The most important equation in the first edition is the decomposition of the log-SDF into sentiment and a fundamental component. In the second edition, Shefrin extends the analysis to demonstrate how this equation can be generalized to encompass the combination of behavioral preferences and behavioral beliefs. This generalization provides a unified approach that ties together the main ideas in the book.

The book is supported by a companion website, which contains examples worked out as Excel spreadsheets so that readers can input their own data to test the results.

Hersh Shefrin is Mario L. Belotti Professor of Finance, Leavey School of Business, Santa Clara University, CA, USA

About this edition

• Publisher: Academic Press
• Publication date: 2008
• ISBN 10: 0123743567
• ISBN 13: 9780123743565
• Binding: Hardcover
• Edition number: 2
• Number of pages: 618