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Value and Patience: The Value Premium in a Dividend-Growth Model with Hyperbolic Discounting


Caliskan, Nilufer; Hens, Thorsten (2013). Value and Patience: The Value Premium in a Dividend-Growth Model with Hyperbolic Discounting. Swiss Finance Institute Research Paper 13-32, University of Zurich.

Abstract

We show that in a consumption-based asset-pricing model with hyperbolic discounting leading to dynamically inconsistent time preferences value premium increases nonlinearly with the degree of discounting and thus affects cross section of returns. To test our model empirically, we relate the size of the value premium in 41 countries to the degree of hyperbolic discounting across those countries. The latter was found in an International Test of Risk Attitudes (INTRA). Our result is robust to the inclusion of other variables from INTRA, such as risk aversion, as well as micro- and macro-economic variables from the 41 countries.

Abstract

We show that in a consumption-based asset-pricing model with hyperbolic discounting leading to dynamically inconsistent time preferences value premium increases nonlinearly with the degree of discounting and thus affects cross section of returns. To test our model empirically, we relate the size of the value premium in 41 countries to the degree of hyperbolic discounting across those countries. The latter was found in an International Test of Risk Attitudes (INTRA). Our result is robust to the inclusion of other variables from INTRA, such as risk aversion, as well as micro- and macro-economic variables from the 41 countries.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
JEL Classification:C42, E20, G12, G15
Language:English
Date:27 May 2013
Deposited On:03 Mar 2014 09:11
Last Modified:08 Dec 2017 04:39
Series Name:Swiss Finance Institute Research Paper
Official URL:http://ssrn.com/abstract=2274823
Other Identification Number:merlin-id:9269

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