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Robust asset pricing with stochastic hyperbolic discounting

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  • Wang, Haijun

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.

Suggested Citation

  • Wang, Haijun, 2017. "Robust asset pricing with stochastic hyperbolic discounting," Finance Research Letters, Elsevier, vol. 21(C), pages 178-185.
    • Handle: RePEc:eee:finlet:v:21:y:2017:i:c:p:178-185
    DOI: 10.1016/j.frl.2017.01.005
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    Cited by:

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    2. Takayuki Ogawa & Hiroaki Ohno, 2024. "Hyperbolic discounting and state‐dependent commitment," Economica, London School of Economics and Political Science, vol. 91(362), pages 414-445, April.
    3. P. Zhukov E. & П. Жуков Е., 2019. "Новые модели анализа изменений стоимости компании, основанные на стохастических ставках дисконтирования // New Models for Analyzing Changes in Company Value Based on Stochastic Discount Rates," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, vol. 23(3), pages 35-48.

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    More about this item

    Keywords

    Asset pricing; Stochastic hyperbolic discounting; Ambiguity; The equity premium puzzle; The risk-free rate puzzle;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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