TY - JOUR

T1 - Preferences on relative return: A potential explanation for some pricing anomalies

AU - Lauterbach, Beni

AU - Reisman, Haim

PY - 2002/12/1

Y1 - 2002/12/1

N2 - We derive a version of the CAPM in which investor preferences depend only on the mean and variance of the ratio between the portfolio return and a reference return. The reference return is specific to each investor, and can also be interpreted as a proxy of the consumption of his neighbors. That is, investors in our economy care about how much they consume relative to their neighbors. The model provides a rational potential explanation for the home bias enigma and for other pricing anomalies. © 2002.

AB - We derive a version of the CAPM in which investor preferences depend only on the mean and variance of the ratio between the portfolio return and a reference return. The reference return is specific to each investor, and can also be interpreted as a proxy of the consumption of his neighbors. That is, investors in our economy care about how much they consume relative to their neighbors. The model provides a rational potential explanation for the home bias enigma and for other pricing anomalies. © 2002.

UR - http://www.scopus.com/inward/record.url?scp=35448940546&partnerID=8YFLogxK

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SN - 1569-3732

VL - 7

JO - Advances in Financial Economics

JF - Advances in Financial Economics

ER -