Do self-control preferences help explain the puzzling behavior of asset prices?

In the context of a simple asset-pricing environment, we study the ability of self-control preferences to account for the stock-price volatility, risk-free-rate and equity-premium puzzles. Using a full-information estimation procedure, we estimate the presence of a quantitatively small self-control...

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Bibliographic Details
Published in:Journal of monetary economics 2007-05, Vol.54 (4), p.1035-1050
Main Authors: DeJong, David N., Ripoll, Marla
Format: Article
Language:English
Subjects:
Assets
Data analysis
Equity
Equity premium
Estimating techniques
Full-information estimation
Information
Preferences
Risk
Risk-free rate
Self control
Stock prices
Stock-price volatility
Studies
Volatility
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Summary:In the context of a simple asset-pricing environment, we study the ability of self-control preferences to account for the stock-price volatility, risk-free-rate and equity-premium puzzles. Using a full-information estimation procedure, we estimate the presence of a quantitatively small self-control effect in the data. Moreover, with results obtained using CRRA preferences serving as a benchmark, we find that the adoption of self-control preferences makes only a marginal contribution towards a resolution of these puzzles.
ISSN:0304-3932
1873-1295
DOI:10.1016/j.jmoneco.2006.03.002