This paper examines the equilibrium firm-level stock returns in two economic models: one where investors are loss averse over the fluctuations of their stock portfolio, and another where they are loss averse over the fluctuations of individual stocks they own. The authors find that the second model, which incorporates "narrow framing" in mental accounting, better explains empirical phenomena such as the high mean and excess volatility of individual stock returns, and the large value premium in the cross-section. In the first model, individual stock returns have a high mean and are more volatile than their underlying cash flows, with a significant value premium. The second model, however, shows that individual stock returns have a lower mean and are less volatile, and the value premium disappears. The authors argue that the difference lies in how investors perceive and react to gains and losses, with the first model focusing on changes in total wealth and the second on changes in individual stocks or the overall portfolio. The paper also discusses the implications of these findings for asset pricing models and future research directions.This paper examines the equilibrium firm-level stock returns in two economic models: one where investors are loss averse over the fluctuations of their stock portfolio, and another where they are loss averse over the fluctuations of individual stocks they own. The authors find that the second model, which incorporates "narrow framing" in mental accounting, better explains empirical phenomena such as the high mean and excess volatility of individual stock returns, and the large value premium in the cross-section. In the first model, individual stock returns have a high mean and are more volatile than their underlying cash flows, with a significant value premium. The second model, however, shows that individual stock returns have a lower mean and are less volatile, and the value premium disappears. The authors argue that the difference lies in how investors perceive and react to gains and losses, with the first model focusing on changes in total wealth and the second on changes in individual stocks or the overall portfolio. The paper also discusses the implications of these findings for asset pricing models and future research directions.