Behavior of Investor, Risk and Development of Asset Pricing Theory

Asset pricing theory is the core of finance. The investor participates in the asset market and decides on the optimal consumption and asset holdings according to the asset risk. Thus, a general equilibrium is realized. This paper studies the development of asset pricing theory from the point of view of the investor's behavior and risk, and identifies three developmental stages of the asset pricing theory since the 1950s, namely, the portfolio choice theory, traditional asset pricing theory, and behavior asset pricing theory. Detailed analyses of the investor's behavior and risk at the three stages are also offered.