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Discount Rates

  • John H. Cochrane

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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File URL: http://www.nber.org/papers/w16972.pdf
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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
Note: AP EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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