Resource allocation in the brain and the the capital asset pricing model

Using recent findings from brain sciences, we model the human brain as solving two optimization problems instead of one, which are (i) optimal resource allocation in the brain and (ii) mean-variance optimization. This changes the classical CAPM in only one way: an alpha appears which provides a unified explanation for value, momentum, high-alpha-of-low-beta, and size effects while also allowing an otherwise flat security market line (SML) to turn steep depending on the resource allocation decisions in the brain. CAPM deviations are expected to be stronger intraday in the enriched framework. The model also explains why stocks with high overnight (intraday) returns continue to have high overnight (intraday) returns coupled with low intraday (overnight) returns.