Testing for short-termism in the UK stock market
This paper uses data on the stock market valuations of a large sample of UK companies to assess if that market displays short-termism. Tests are undertaken of whether discount rates, implicit in market valuations, applied to cash flows which accrue in the longer term are too high, both absolutely and relative to the rates applied to cash flows in the near term. Prima facie evidence that these longer-term discount rates are too high is found, a result consistent with the existence of short-termism.
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