Value and Patience: The Value Premium in a Dividend-Growth Model with Hyperbolic Discounting

49 Pages Posted: 8 Jun 2013 Last revised: 7 Dec 2018

See all articles by Nilufer Caliskan

Nilufer Caliskan

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Thorsten Hens

University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute

Date Written: 2017

Abstract

We show that in a consumption-based asset-pricing model with hyperbolic discounting leading to dynamically inconsistent time preferences value premium increases nonlin-early with the degree of discounting and thus affects 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.

JEL Classification: C42, E20, G12, G15

Suggested Citation

Caliskan, Nilufer and Hens, Thorsten, Value and Patience: The Value Premium in a Dividend-Growth Model with Hyperbolic Discounting (2017). Swiss Finance Institute Research Paper No. 13-32. Available at SSRN: https://ssrn.com/abstract=2274823 or http://dx.doi.org/10.2139/ssrn.2274823

Nilufer Caliskan (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Z├╝rich, Zurich 8032
Switzerland

Swiss Finance Institute

Zurich
Switzerland

Thorsten Hens

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 32
Zurich, 8032
Switzerland
+41-44 634 37 06 (Phone)

Norwegian School of Economics and Business Administration (NHH)

Helleveien 30
Bergen, 5045
Norway

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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