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Maxing Out: Stocks as Lotteries and the Cross-Section of Expected Returns

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Bali, Turan G., Cakici, Nusret, Whitelaw, Robert F.·2010·SSRN Electronic Journal

DOI 10.2139/ssrn.1262416

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THE VALUATION OF RISK ASSETS AND THE SELECTION OF RISKY INVESTMENTS IN STOCK PORTFOLIOS AND CAPITAL BUDGETS**This paper is another in a series of interrelated theoretical and statistical studies of corporate financial and investment policies being made under grants from the Rockefeller Foundation, and more recently the Ford Foundation, to the Harvard Business School. The generous support for this work is most gratefully acknowledged. The author is also much indebted to his colleagues Professors Bishop, Christenson, Kahr, Raiffa, and (especially) Schlaifer, for extensive discussion and commentary on an earlier draft of this paper; but responsibility for any errors or imperfections remains strictly his own.[Professor Sharpe's paper, “Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk” (Journal of Finance, September 1964) appeared after this paper was in final form and on its way to the printers. My first section, which parallels the first half of his paper (with corresponding conclusions), sets the algebraic framework for sections II, III and VI, (which have no counterpart in his paper) and for section IV on the equilibrium prices of risk assets, concerning which our results differ significantly for reasons which will be explored elsewhere. Sharpe does not take up the capital budgeting problem developed in section V below.]
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Do investors trade too much?
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Media Coverage and the Cross‐section of Stock Returns
FANG, L., & PERESS, J. (2009) · The Journal of Finance · doi:10.1111/j.1540-6261.2009.01493.x · Cited by 1,956
Who Gambles in the Stock Market?
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SKEWNESS PREFERENCE AND THE VALUATION OF RISK ASSETS*
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Stocks as Lotteries: The Implications of Probability Weighting for Security Prices
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Equity Portfolio Diversification
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“For value-weighted decile portfolios, the difference between returns on the portfolios with the 1 See, for example, Odean (1999), Mitton and Vorkink (2007), and Goetzmann and Kumar (2008) for evidence based on the portfolios of a large sample of U.S. individual investors.”
Background
Idiosyncratic risk and the cross-section of expected stock returns
Fu, F. (2009) · Journal of Financial Economics · doi:10.1016/j.jfineco.2008.02.003 · Cited by 1,065
Down or Out: Assessing the Welfare Costs of Household Investment Mistakes
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Illiquidity and Stock Returns II: Cross-section and Time-series Effects
Amihud, Y., & Noh, J. (2021) · The Review of Financial Studies · doi:10.1093/rfs/hhaa080 · Cited by 948
Expected Idiosyncratic Skewness
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Autoregressive Conditional Skewness
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Self-citation
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Information Acquisition and Under-Diversification
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Gamblers favor skewness, not risk: Further evidence from United States’ lottery games
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Skewness Preference and Portfolio Choice
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Conditional coskewness and asset pricing
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Barberis, N., & Huang, M. (2007) · National Bureau of Economic Research · doi:10.3386/w12936 · Cited by 79

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The supraview of return predictive signals
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Walter, D., Weber, R., & Weiss, P. (2022) · SSRN Electronic Journal · doi:10.2139/ssrn.4164117 · Cited by 12
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See all 517

Authors: Bali, T. G., Cakici, N., & Whitelaw, R. F.
Venue: SSRN Electronic Journal
Publisher: Elsevier BV
Published: 2010
ISSN: 1556-5068 (ISSN-L)
DOI: 10.2139/ssrn.1262416
OpenAlex: W2101704930
Cited by: 517
References: 49
Type: posted content
Language: en
Open access: green

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Maxing Out: Stocks as Lotteries and the Cross-Section of Expected Returns

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