Long-Term Discount Rates Do Not Vary Across Firms
56 Pages Posted: 27 Feb 2018 Last revised: 22 Mar 2021
Date Written: February 12, 2019
Long-term expected returns do not appear to vary in the cross section of stocks. We show that even negligible persistent differences in expected returns, if they existed, would be easy to detect. Markers of such differences, however, are absent from actual stock returns. Our results are consistent with behavioral models and production-based asset pricing models in which ﬁrms’ risks change over time. Consistent with the lack of long-term differences in expected returns, persistent differences in ﬁrm characteristics do not predict the cross section of stock returns. Our results imply 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: Suggested Citation