Discount Rates

65 Pages Posted: 25 Apr 2011 Last revised: 18 May 2023

See all articles by John H. Cochrane

John H. Cochrane

Hoover Institution; National Bureau of Economic Research (NBER)

Date Written: April 2011

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.

Suggested Citation

Cochrane, John H., Discount Rates (April 2011). NBER Working Paper No. w16972, Available at SSRN: https://ssrn.com/abstract=1820084

John H. Cochrane (Contact Author)

Hoover Institution ( email )

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United States
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HOME PAGE: http://www.johnhcochrane.com/

National Bureau of Economic Research (NBER)

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