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Diminishing marginal impatience: its promises for asset pricing

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  • Hiranya K. Nath
  • Jayanta Sarkar

Abstract

This study argues that diminishing marginal impatience ( DMI ) as an intuitively plausible behavioural assumption of endogenous time preference has the potential for resolving important issues like the equity premium puzzle . It shows that, while applied to a model in the traditional overlapping generations ( OG ) framework, DMI is capable of generating assets prices with magnitude and volatility higher than those suggested by standard models with constant marginal impatience ( CMI ).

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.

Volume (Year): 2 (2006)
Issue (Month): 1 (January)
Pages: 61-64

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Handle: RePEc:taf:apfelt:v:2:y:2006:i:1:p:61-64

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  1. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  2. Weil, Philippe, 1989. "The equity premium puzzle and the risk-free rate puzzle," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 401-421, November.
  3. Andrew A. Samwick, 1997. "Discount Rate Heterogeneity and Social Security Reform," NBER Working Papers 6219, National Bureau of Economic Research, Inc.
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Cited by:
  1. Sarkar, Jayanta, 2007. "Growth dynamics in a model of endogenous time preference," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 528-542.

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