Explaining abnormal returns in stock markets: An alpha-neutral version of the CAPM

This paper develops a behavioural asset pricing model in which traders are not fully rational as is commonly assumed the literature. The derived underpinned by notion that agents’ preferences affected their degree of optimism or pessimism regarding future market states. It characterized representation consistent with Capital Asset Pricing Model, augmented bias yields simple and intuitive economic explanation abnormal returns typically left unexplained benchmark models. results we provide show how factor introduced able to absorb “abnormal” captured traditional CAPM, thereby reducing errors statistical insignificance.