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Discount Rates

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  • John H. Cochrane

Abstract

Discount rate variation is the central organizing question of current asset pricing research. I survey facts, theories and applications. We thought returns were uncorrelated over time, so variation in price-dividend ratios was due to variation in expected cashflows. Now it seems all price-dividend variation corresponds to discount-rate variation. We thought that the cross-section of expected returns came from the CAPM. Now we have a zoo of new factors. I categorize discount-rate theories based on central ingredients and data sources. Discount-rate variation continues to change finance applications, including portfolio theory, accounting, cost of capital, capital structure, compensation, and macroeconomics.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16972.

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Date of creation: Apr 2011
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Publication status: published as Discount Rates: American Finance Association Presidential Address . Journal of Finance, 66, 1047 - 1108 , A ugust 2011.
Handle: RePEc:nbr:nberwo:16972

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Citations

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Cited by:
  1. Robin Greenwood & Samuel Hanson, 2013. "Waves in Ship Prices and Investment," NBER Working Papers 19246, National Bureau of Economic Research, Inc.
  2. David T. Robinson & Berk A. Sensoy, 2011. "Cyclicality, Performance Measurement, and Cash Flow Liquidity in Private Equity," NBER Working Papers 17428, National Bureau of Economic Research, Inc.
  3. Ralph S.J. Koijen & Tobias J. Moskowitz & Lasse Heje Pedersen & Evert B. Vrugt, 2013. "Carry," NBER Working Papers 19325, National Bureau of Economic Research, Inc.
  4. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer, vol. 26(1), pages 3-38, March.
  5. John H. Cochrane, 2013. "A Mean-Variance Benchmark for Intertemporal Portfolio Theory," NBER Working Papers 18768, National Bureau of Economic Research, Inc.
  6. Lu Zhang & Howard Kung & Hang Bai, 2013. ""Shooting" the CAPM," 2013 Meeting Papers 905, Society for Economic Dynamics.
  7. Eric Bahel & Christian Trudeau, 2014. "Stable lexicographic rules for shortest path games," Working Papers e07-46, Virginia Polytechnic Institute and State University, Department of Economics.
  8. Ing-Haw Cheng & Andrei Kirilenko & Wei Xiong, 2012. "Convective Risk Flows in Commodity Futures Markets," NBER Working Papers 17921, National Bureau of Economic Research, Inc.
  9. John H. Cochrane, 2013. "Finance: Function Matters, Not Size," Journal of Economic Perspectives, American Economic Association, vol. 27(2), pages 29-50, Spring.
  10. Dennis Fixler & Ryan Greenaway-McGrevy, 2012. "Valuation of Near-Market Endogenous Assets," BEA Working Papers 0083, Bureau of Economic Analysis.
  11. Chen, Sichong, 2012. "The predictability of aggregate Japanese stock returns: Implications of dividend yield," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 284-304.
  12. Daskalaki, Charoula & Kostakis, Alexandros & Skiadopoulos, George, 2014. "Are there common factors in individual commodity futures returns?," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 346-363.

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