BEHAVIORAL APPROACH TO ASSET PRICING

by Hersh Shefrin

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 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.

Paperback

First published January 1, 2005