Abstract

http://ssrn.com/abstract=8000
 
 

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Discounting under Uncertainty


Eugene F. Fama


University of Chicago - Finance


J. OF BUSINESS, Vol. 69 No. 4, October 1996

Abstract:     
Suppose asset pricing is governed by the CAPM or the ICAPM, and the expected one-period simple returns on the net cash flows (NCFs) of investment projects are constant through time. Then the NCFs are priced by discounting their expected values with their expected one-period simple returns. But when NCFs are priced by discounting their expected values with constant CAPM or ICAPM expected one-period simple returns, distributions of NCFs more than one period ahead are likely to be skewed right. Expected payoffs are then larger than median payoffs, and expected payoffs are progressively more unusual outcomes for longer investment horizons.

JEL Classification: G12

Accepted Paper Series


Not Available For Download

Date posted: December 18, 1996  

Suggested Citation

Fama, Eugene F., Discounting under Uncertainty. J. OF BUSINESS, Vol. 69 No. 4, October 1996. Available at SSRN: http://ssrn.com/abstract=8000

Contact Information

Eugene F. Fama (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)
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