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

Author

Listed:
  • Nilufer Caliskan

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute)

  • Thorsten Hens

    (University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute)

Abstract

We show that in a consumption-based asset-pricing model with hyperbolic discounting leading to dynamically inconsistent time preferences value premium increases nonlin-early 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.

Suggested Citation

  • Nilufer Caliskan & Thorsten Hens, 2013. "Value and Patience: The Value Premium in a Dividend-Growth Model with Hyperbolic Discounting," Swiss Finance Institute Research Paper Series 13-32, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1332
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    More about this item

    Keywords

    value premium; international evidence; Gordon growth model; hyperbolic time discounting; dynamically inconsistent preferences.;
    All these keywords.

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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