Robust asset pricing with stochastic hyperbolic discounting

Haijun Wang ()

Finance Research Letters, 2017, vol. 21, issue C, 178-185

Abstract: This paper examines how the interactions of stochastic hyperbolic discounting and ambiguity affect asset pricing. It is found that stochastic hyperbolic discounting has no effects on the equity premium and can raise or lower the risk-free rate, while ambiguity raises the equity premium and always lowers the risk-free rate. Empirical analysis shows that the equity premium puzzle and the risk-free rate puzzle can be resolved by stochastic hyperbolic discounting and ambiguity, while exponential discounting and ambiguity cannot interpret the risk-free rate puzzle.

Keywords: Asset pricing; Stochastic hyperbolic discounting; Ambiguity; The equity premium puzzle; The risk-free rate puzzle (search for similar items in EconPapers)
JEL-codes: C61 G11 G12 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:21:y:2017:i:c:p:178-185

DOI: 10.1016/j.frl.2017.01.005

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