Probability distortion, asset prices, and economic growth

verfasst von

Maik Dierkes, Stephan Germer, Vulnet Sejdiu

Abstract

In this paper, we link stock market investors’ probability distortion to future economic growth. The empirical challenge is to quantify the optimality of today's decision making to test for its impact on future economic growth. Fortunately, risk preferences can be estimated from stock markets. Using monthly aggregate stock prices from 1926 to 2015, we estimate risk preferences via an asset pricing model with Cumulative Prospect Theory (CPT) agents and distill a recently proposed probability distortion index. This index negatively predicts GDP growth in-sample and out-of-sample. Predictability is stronger and more reliable over longer horizons. Our results suggest that distorted asset prices may lead to significant welfare losses.

Organisationseinheit(en)

Institut für Banken und Finanzierung

Typ

Artikel

Journal

Journal of Behavioral and Experimental Economics

Band

84

ISSN

2214-8043

Publikationsdatum

02.2020

Publikationsstatus

Veröffentlicht

Peer-reviewed

Ja

ASJC Scopus Sachgebiete

Angewandte Psychologie, Volkswirtschaftslehre und Ökonometrie

Fachgebiet (basierend auf ÖFOS 2012)

Finanzwissenschaft

Ziele für nachhaltige Entwicklung

SDG 8 – Anständige Arbeitsbedingungen und wirtschaftliches Wachstum

Elektronische Version(en)

https://doi.org/10.1016/j.socec.2019.101476 (Zugang: Geschlossen)