Bridge over ocean
12 May 2019 Research Foundation

Popularity: A Bridge Between Classical and Behavioral Finance

  1. Roger G. Ibbotson, PhD
This session from the 72nd CFA Institute Annual Conference is based on the CFA Institute Research Foundation book, Popularity: A Bridge between Classical and Behavioral Finance. Roger G. Ibbotson discusses:
  • “popularity,” or how much a security is liked, apart from the fundamentals: The more investors like it, the higher the price but the lower the expected return.
  • a new approach to asset pricingthe popularity asset pricing model (PAPM), which builds on the CAPM but includes additional investor preferences beyond risk aversion, such as liquidity and brand preference. These specific preferences are aggregated into security prices and are not arbitraged away.
  • that preferences can be rational (classical) or emotional (behavioral), so the PAPM provides a bridge between classical and behavioral finance.

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