Long-Term Discount Rates Do Not Vary Across Firms

43 Pages Posted: 27 Feb 2018 Last revised: 27 May 2018

Matti Keloharju

Aalto University School of Business; Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Juhani T. Linnainmaa

USC Marshall School of Business; National Bureau of Economic Research (NBER)

Peter M. Nyberg

Aalto University

Date Written: April 22, 2018

Abstract

Long-term expected returns appear to vary little, if at all, in the cross section of stocks. We devise a bootstrapping procedure that injects small amounts of variation into expected returns and show that even negligible differences in expected returns, if they existed, would be easy to detect. Markers of such differences, however, are absent from actual stock returns. Our estimates are consistent with production-based asset pricing models such as Berk, Green, and Naik (1999) and Gomes, Kogan, and Zhang (2005) in which firms' risks change over time. Our results imply that stock market anomalies have only a limited effect on firm valuations.

Keywords: Factors, return predictability, market efficiency, production-based asset pricing models, time-varying risks

JEL Classification: G12

Suggested Citation

Keloharju, Matti and Linnainmaa, Juhani T. and Nyberg, Peter M., Long-Term Discount Rates Do Not Vary Across Firms (April 22, 2018). Available at SSRN: https://ssrn.com/abstract=3125502 or http://dx.doi.org/10.2139/ssrn.3125502

Matti Keloharju

Aalto University School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Juhani T. Linnainmaa (Contact Author)

USC Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter Mikael Nyberg

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

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