9.2

Question 1

What does myopic loss aversion consist off

Answer 1

1. Loss aversion

2. Evaluation period = mental accounting

Question 2

Loss aversion related to equity premium

Answer 2

Ppl more sensitive to losses

They are more willing to take risks when evaluation period is long, checked infrequent

Short time horizon = less preference for stock/ more Bond

Question 3

Equity premium and evaluation period

Answer 3

Short time horizon - less preference stock (risk)

Question 4

What is the equity premium puzzle

Answer 4

Stock have been outperforming bonds by A LOT. Why are ppl still willing to hold bonds?

Question 5

Evaluation period is

Answer 5

1 year

Financial duties and annual reports

Question 6

Given 1y EP, what is he optimal asset allocation

Answer 6

50-50

Same utility

Question 7

Relationship Equity premium and evaluation period

Answer 7

If EP goes up. Eq Pr goes down. Because Stock becomes more attractive

Less psychic cost

Question 8

psychic cost definition

Answer 8

Price you pay for frequently observing - short EP

Question 9

Why does risk aversion not explain the puzzle

Answer 9

The coefficient should be 30 then. And fewww people are ThAT risk averse

Question 10

Difference planning horizon and evaluation period

Answer 10

Planning horizon = number of years after which an inc wants to achieve a certain amount of value. Eventual goal

Ep = length of time over which inv aggregates returns -> implicit planning horizon