Investor's revealed preference for asset pricing models
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Investor's revealed preferenceAbstract
Mutual funds are very popular type of investment, as the risk is much smaller compared to the direct investment in stock markets and on the other hand there is a large variety which covers almost any type of investors. In the present paper, after we present the necessary theoretical background regarding the statistic test of Berk & van Binsbergen (2014) we present the results of an analysis in order to conclude which was the closest asset pricing model investors were actually using, from a set of candidate models.
Specifically, based on data from 1,109 mutual funds we applied the above methodology in order to conclude whether investors’ decisions are based on a specific model. The results shown that the asset model that was proved to rule the markets, is the C-CAPM model. The ease of understanding of this model as well as its ease of use compared it to other models might be the reason that it is used by the plethora of investors.
Key words: Mutual funds, investors’ decisions, models.