Abstract
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.
| Original language | English |
|---|---|
| Title of host publication | Innovations in Investments and Corporate Finance |
| Publisher | JAI Press |
| Pages | 93-103 |
| Number of pages | 11 |
| ISBN (Print) | 0762308974, 9780762308972 |
| State | Published - 2002 |
Publication series
| Name | Advances in Financial Economics |
|---|---|
| Volume | 7 |
| ISSN (Print) | 1569-3732 |