Portfolio choice and asset pricing with endogenous beliefs and skewness preference.

Summary This thesis studies portfolio choice and asset pricing with preferences that go beyond standard expectation-utility and mean-variance preferences. The first part of this thesis focuses on a decision model in which the decision maker forms endogenous beliefs given his expectation utility and hindsight deception. The implications of the model for portfolio choice and asset pricing are derived and compared to the implications of the standard utility expectation model. The second part of this thesis focuses on investors who derive the utility of the first three moments of their portfolio returns. We derive and test the conditions under which additional assets can improve the investment universe of investors with mean-variance-skewness preferences. The implications of these preferences for equilibrium asset returns are then analyzed and tested with stock market returns.