Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support

Myopic Loss Aversion and the Equity Premium Puzzle

Shlomo Benartzi and Richard H. Thaler
The Quarterly Journal of Economics
Vol. 110, No. 1 (Feb., 1995), pp. 73-92
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2118511
Page Count: 20
  • Download ($42.00)
  • Cite this Item
If you need an accessible version of this item please contact JSTOR User Support
Myopic Loss Aversion and the Equity Premium Puzzle
Preview not available

Abstract

The equity premium puzzle refers to the empirical fact that stocks have outperformed bonds over the last century by a surprisingly large margin. We offer a new explanation based on two behavioral concepts. First, investors are assumed to be "loss averse," meaning that they are distinctly more sensitive to losses than to gains. Second, even long-term investors are assumed to evaluate their portfolios frequently. We dub this combination "myopic loss aversion." Using simulations, we find that the size of the equity premium is consistent with the previously estimated parameters of prospect theory if investors evaluate their portfolios annually.

Page Thumbnails

  • Thumbnail: Page 
[73]
    [73]
  • Thumbnail: Page 
74
    74
  • Thumbnail: Page 
75
    75
  • Thumbnail: Page 
76
    76
  • Thumbnail: Page 
77
    77
  • Thumbnail: Page 
78
    78
  • Thumbnail: Page 
79
    79
  • Thumbnail: Page 
80
    80
  • Thumbnail: Page 
81
    81
  • Thumbnail: Page 
82
    82
  • Thumbnail: Page 
83
    83
  • Thumbnail: Page 
84
    84
  • Thumbnail: Page 
85
    85
  • Thumbnail: Page 
86
    86
  • Thumbnail: Page 
87
    87
  • Thumbnail: Page 
88
    88
  • Thumbnail: Page 
89
    89
  • Thumbnail: Page 
90
    90
  • Thumbnail: Page 
91
    91
  • Thumbnail: Page 
92
    92