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Diminishing marginal impatience: its promises for asset pricing

  • Hiranya K. Nath
  • Jayanta Sarkar

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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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. Andrew A. Samwick, 1997. "Discount Rate Heterogeneity and Social Security Reform," NBER Working Papers 6219, National Bureau of Economic Research, Inc.
  2. Philippe Weil, 1989. "The Equity Premium Puzzle and the Riskfree Rate Puzzle," NBER Working Papers 2829, National Bureau of Economic Research, Inc.
  3. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
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