A0873
Title: Subjective risk and return
Authors: Theis Jensen - Yale University (United States) [presenting]
Abstract: Traditional asset pricing models like the CAPM explain realized returns worse than newer asset pricing models like Fama-French-5, but why? The aim is to show that (i) traditional models are better at explaining the subjective risk of stock but that (ii) newer models are better at predicting return-enhancing mispricing and that (iii) these outcomes can be explained by a model in which all the CAPM assumptions hold, except that some investors have an optimism bias. The results suggest that the search for better models of realized returns has produced better models of mispricing but worse models of risk.
