A note on a framework to assess the required equity risk premium using cumulative prospect theory
Loading...
Date
Authors
Holdsworth, Chris
Mare, Eben
Journal Title
Journal ISSN
Volume Title
Publisher
Scientific Research Publishing
Abstract
We provide a framework to ascertain the required equity risk premium (ERP) within the setting of Cumulative
Prospect Theory (CPT) over arbitrary investment time periods. Once accounting for behavioral biases in estimating
distributions (generated by using a simulation of asset returns based on a sampling procedure) and using
a CPT utility function, it becomes apparent that the key determinant of the required ERP is an investor’s time
horizon.
Description
Keywords
Cumulative prospect theory, Investment time horizon, Multi-asset allocation, Equity risk premium (ERP), Cumulative prospect theory (CPT)
Sustainable Development Goals
Citation
Holdsworth, C & Mare, E 2014, 'A note on a framework to assess the required equity risk premium using cumulative prospect theory', Theoretical Economics Letters, vol. 4, pp. 89-90.