International Evidence on the Equity Premium Puzzle and Time Discounting
Multinational Finance Journal, 2013, vol. 17, no. 3/4, pp. 149-163
15 Pages Posted: 31 Jul 2012 Last revised: 2 Aug 2017
Date Written: April 26, 2013
We elicit time discounting factors in an international survey. Our analysis reveals a significant relationship between time discount factors and historical equity premium across 27 countries. It implies that in countries where participants tend to be more short-term oriented, higher historical equity risk premiums are observed. This finding is consistent with the explanation of equity premium puzzle by myopic loss aversion. We investigate the mediational effect of time preference between Hofstede's Uncertainty Avoidance cultural dimension and equity risk premium.
Keywords: equity risk premium, time discounting, myopic loss aversion, cultural finance
JEL Classification: G02, G11, D81
Suggested Citation: Suggested Citation