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International Evidence on the Equity Premium Puzzle and Time Discounting

Author

Listed:
  • Marc Oliver Rieger

    (University of Trier, Germany)

  • Thorsten Hens

    (University of Zurich, Switzerland)

  • Mei Wang

    (WHU Otto Beisheim school of Economics, Germany)

Abstract

We examine time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premiums across 27 countries. This result implies that higher historical equity risk premiums are observed in countries where survey participants tend to be more short-term oriented. This finding is consistent with the explanation of the equity premium puzzle provided by myopic loss aversion.

Suggested Citation

  • Marc Oliver Rieger & Thorsten Hens & Mei Wang, 2013. "International Evidence on the Equity Premium Puzzle and Time Discounting," Multinational Finance Journal, Multinational Finance Journal, vol. 17(3-4), pages 149-163, September.
    • Handle: RePEc:mfj:journl:v:17:y:2013:i:3-4:p:149-163
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    References listed on IDEAS

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    Cited by:

    1. Marc Oliver Rieger & Mei Wang & Thorsten Hens, 2017. "Estimating cumulative prospect theory parameters from an international survey," Theory and Decision, Springer, vol. 82(4), pages 567-596, April.
    2. Nahil Boussiga & Ezzeddine Abaoub, 2015. "How Does Government Policy Affect Equity Risk Premium?," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(2), pages 65-75.
    3. Minh Hai Ngo & Marc Oliver Rieger & Shuonan Yuan, 2018. "The Fundamental Equity Premium and Ambiguity Aversion in an International Context," Risks, MDPI, vol. 6(4), pages 1-24, November.
    4. Wang, Mei & Rieger, Marc Oliver & Hens, Thorsten, 2016. "How time preferences differ: Evidence from 53 countries," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 115-135.
    5. Nicholas Apergis & James E. Payne, 2018. "Monetary policy rules and the equity risk premium: Evidence from the US experience," Review of Financial Economics, John Wiley & Sons, vol. 36(4), pages 287-299, October.
    6. Marc Oliver Rieger & Mei Wang & Thorsten Hens, 2021. "Universal time preference," PLOS ONE, Public Library of Science, vol. 16(2), pages 1-15, February.
    7. Rieger, Marc Oliver, 2022. "Uncertainty avoidance, loss aversion and stock market participation," Global Finance Journal, Elsevier, vol. 53(C).
    8. Marc Oliver Rieger & Mei Wang & Thorsten Hens, 2020. "Universal Time Preference," Working Paper Series 2020-07, University of Trier, Research Group Quantitative Finance and Risk Analysis.

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    More about this item

    Keywords

    equity risk premium; time discounting; myopic loss aversion; cultural finance;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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