A theory is developed that explains how the stock market can crash inthe absence of news about fundamentals, and why crashes are more commonthan frenzies. A crash occurs via the interaction of rational and naive investors.Naive traders believe in a simple (but reasonable) statistical modelof...

We explore connections between the certainty equivalent return (CER) functional and theunderlying utility function. Curvature properties of the functional depend upon how utilityfunction attributes relate to Hyperbolic Absolute Risk Aversion (HARA) type utility functions.If the CER functional is...