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Time Discounting and the Value Premium

In: Cultural Finance A World Map of Risk, Time and Money

Author

Listed:
  • Thorsten Hens
  • Marc Oliver Rieger
  • Mei Wang

Abstract

In this chapter, we summarize results from Hens and Schindler (2020) on the influence of time discounting on value premium. We will see that in a consumption-based asset pricing model with hyperbolic discounting — leading to dynamically inconsistent time preferences — the value premium increases nonlinearly with the degree of discounting and thus affects cross section of returns. To test this model, Hens and Schindler (2020) relate the size of the value premium in 41 countries to the degree of hyperbolic discounting across those countries, using the INTRA data. The result is robust to the inclusion of other variables from INTRA, such as risk aversion, as well as micro and macroeconomic variables from the 41 countries.

Suggested Citation

  • Thorsten Hens & Marc Oliver Rieger & Mei Wang, 2020. "Time Discounting and the Value Premium," World Scientific Book Chapters, in: Cultural Finance A World Map of Risk, Time and Money, chapter 15, pages 303-319, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811221958_0015
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    More about this item

    Keywords

    Finance; Culture; International; Time Preferences; Risk Preferences; Decision Theory;
    All these keywords.

    JEL classification:

    • Z1 - Other Special Topics - - Cultural Economics
    • G4 - Financial Economics - - Behavioral Finance
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics

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