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I test the hypothesis that investors evaluate stocks based on the prospect theory value of the distribution of past returns. Because some investors tilt towards stocks with high prospect theory value, these stocks become overvalued and earn low subsequent returns. During bubbles this effect should be stronger, due to rising limits to arbitrage and increased participation of individual investors. I do not find strong support for this prediction in the cross section of returns in U.S. stockdoi:10.5282/jums/v5i3pp262-294 fatcat:jjy4nt6unzelnafd5r7zlhqjoi