On the timing premium puzzle

Hongseok Choi

Economics Letters, 2025, vol. 250, issue C

Abstract: The long-run risk model has been criticized for implying an excessive timing premium (excessive willingness to pay for resolving consumption uncertainty early). In this paper, I argue that the criticism is misplaced: The agent’s timing premium is not to be compared with our own, because our horizons are not infinite and the timing premium turns out to be sensitive to the choice of the horizon. Furthermore, the agent’s preference for early resolution of uncertainty is neither essential nor necessary, in the first place, in explaining the equity premium of the long-run risk model.

Keywords: Long-run risk; Preference for early resolution of uncertainty; Timing premium; Equity premium; Hedging (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:250:y:2025:i:c:s0165176525000990

DOI: 10.1016/j.econlet.2025.112262

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