Implications of Quasi-Geometric Discounting on the Observable Sharpe Ratio

Tack Yun () and Wooheon Rhee

No 243, Econometric Society 2004 North American Summer Meetings from Econometric Society

Abstract: In this paper, we study implications of quasi-geometric discounting for stochastic properties of asset returns that can be observed in the financial market data. In particular, we emphasize that the dividend income from an asset measured in a unit of account may not reflect the whole dividend that consumers expect to obtain from the asset in models with quasi-geometric discounting. We then show that allowing for such a possibility in a stochastic growth model with quasi-geometric discounting requires a small departure towards time inconsistent preferences to match the Sharpe ratio observed in the U.S. data

Keywords: Quasi-Geometric Discounting; Observable and Unobservable Asset Returns; the Sharpe Ratio (search for similar items in EconPapers)
JEL-codes: E32 G12 (search for similar items in EconPapers)
Date: 2004-08-11
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:nasm04:243

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