Patience Premium

We introduce the notion of a patience premium, which is based on the concept of ambiguity aversion and is an ambiguity premium. We identify three reasons for the existence of the patience premium: Certainty preferences: perceived confidence in the expected performance; Comparison with peers: desire to outperform the competition drives the focus towards short-term outcomes; Loss aversion: intolerance to negative performance leads to the use of sub-optimal trading strategies.These reasons are driven by the behaviour of market participants and are interconnected. The phenomenon of the patience premium helps explain why the performance of investment strategies may benefit from having longer holding periods