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Roger Ibbotson

Professor, Practice Emeritus of Finance at Yale School of Management

The Popularity Premium: A Bridge between Classical and Behavioral Finance

Investors like or dislike various characteristics of securities for rational reasons (e.g.,, risk and liquidity, as in classical finance) or irrational reasons (e.g. brand recognition, as in behavioral finance). In the capital markets, popular (unpopular) securities trade at prices that are higher (lower) than they would be otherwise; hence, the shares may provide lower (higher) expected returns. We introduce the popularity asset pricing model (PAPM), which adds both risk and non-risk investor preferences for security characteristics. A major conclusion of the PAPM is that the expected return of any security is a linear function of not only its systematic risk (beta) but also all of the security characteristics that investors care about. In addition, we frame the well-known premiums (such as size, value and liquidity) in a popularity context, while providing empirical support of the popularity hypothesis. Popularity unifies the factors that affect price in classical finance with those that drive price in behavioral finance, thus creating a unifying theory or bridge between classical and behavioral finance.


Roger Ibbotson is a professor in the Practice Emeritus of Finance at Yale School of Management. He is also chairman of Zebra Capital Management, LLC, an equity investment, index and hedge fund manager. He is the founder, advisor and former chairman of Ibbotson Associates, now a Morningstar Company. He has written numerous books and articles including Stocks Bonds Bills and Inflation with Rex Sinquefield (updated annually), which serves as a standard reference for information and capital market returns.

Ibbotson conducts research on a broad range of financial topics, including popularity, liquidity, investment returns, mutual funds, international markets, portfolio management and valuation. He has recently published Popularity: A Bridge between Classical and Behavioral Finance and Lifetime Financial Advice. He has also co-authored The Equity Risk Premium with William Goetzmann and two books with Gary Brinson, Global Investing and Investment Markets. He is a regular contributor and editorial board member to both trade and academic journals.

Ibbotson serves on numerous boards including Dimensional Fund Advisors. He frequently speaks at universities, conferences and other forums. He received his bachelor’s degree in mathematics from Purdue University, his MBA from Indiana University and his Ph.D. from the University of Chicago where he taught for more than 10 years and served as executive director of the Center for Research in Security Prices.