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Loss aversion asset pricing model performance: empirical evidence from five pacific-basin countries

Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century

ISBN: 978-0-76231-258-0, eISBN: 978-1-84950-377-8

Publication date: 23 December 2005

Abstract

This paper studies the empirical application of an asset pricing model derived from the irrational individual behavior of loss aversion. Previous research using loss aversion asset pricing finds conclusive evidence that estimations match market equity premium and volatility using simulation data. We find that within its empirical application, the estimated errors are comparable to errors estimated from the capital asset pricing model. This study of the correlations between rational and irrational asset pricing model from the empirical results finds validity for both estimated values. Finally, we see the importance of cultures, economic development and financial development on asset pricing through an empirical examination of five pacific-basin countries in the estimation of asset pricing models.

Citation

Ng, D. and Sadeghi, M. (2005), "Loss aversion asset pricing model performance: empirical evidence from five pacific-basin countries", Fetherston, T.A. and Batten, J.A. (Ed.) Asia Pacific Financial Markets in Comparative Perspective: Issues and Implications for the 21st Century (Contemporary Studies in Economic and Financial Analysis, Vol. 86), Emerald Group Publishing Limited, Leeds, pp. 235-271. https://doi.org/10.1016/S1569-3759(05)86012-7

Publisher

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Emerald Group Publishing Limited

Copyright © 2005, Emerald Group Publishing Limited