Value and patience: The value premium in a dividend-growth model with hyperbolic discounting

Thorsten Hens and Nilüfer Schindler

Journal of Economic Behavior & Organization, 2020, vol. 172, issue C, 161-179

Abstract: We show 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 the 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.

Keywords: Value premium; International evidence; Gordon growth model; Hyperbolic time discounting; Dynamically inconsistent preferences (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:172:y:2020:i:c:p:161-179

DOI: 10.1016/j.jebo.2020.01.028

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