# Behavioral Finance -- Asset Prices Predictability, Equity Premium Puzzle, Volatility Puzzle: The Rational Finance Approach

**Authors:** Svetlozar Rachev, Stoyan Stoyanov, Stefan Mittnik, Frank J. Fabozzi, Abootaleb Shirvani  
**arXiv:** [1710.03211](https://arxiv.org/abs/1710.03211)  
**Date:** 2017-10-09  
**Summary page:** https://www.summarizepaper.com/en/paper/1710.03211v2/

## Key points

- The paper addresses three objections of behavioral finance to rational finance: predictability of asset returns, the equity premium puzzle, and the volatility puzzle.
- The authors propose statistical models within the framework of rational finance to resolve these objections.
- The proposed resolutions are not claimed to be the only explanations for these anomalies.
- The paper contributes to expanding understanding of asset pricing and market behavior within a rational framework.
- The findings have implications for both academics and practitioners in finance.

## Summary

In the paper titled "Behavioral Finance -- Asset Prices Predictability, Equity Premium Puzzle, Volatility Puzzle: The Rational Finance Approach," authors Svetlozar Rachev, Stoyan Stoyanov, Stefan Mittnik, Frank J. Fabozzi, and Abootaleb Shirvani address three main objections of behavioral finance to the theory of rational finance. These objections are considered as anomalies that the theory of rational finance cannot explain: predictability of asset returns, the equity premium puzzle, and the volatility puzzle. The authors offer resolutions to these objections within the framework of rational finance by proposing statistical models that can be used without relying on behavioral finance assumptions when searching for explanations for these anomalies. It is important to note that while they provide possible explanations for these anomalies, they do not claim that their proposed resolutions are the only ones. This paper provides valuable insights into understanding and addressing some key challenges in financial theory. By offering alternative explanations within a rational framework it contributes to expanding our understanding of asset pricing and market behavior. The findings presented in this paper have implications for both academics and practitioners in the field of finance.