Long-Term Discount Rates Do Not Vary Across Firms

56 Pages Posted: 27 Feb 2018 Last revised: 20 Apr 2020

See all articles by Matti Keloharju

Matti Keloharju

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

Juhani T. Linnainmaa

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Peter M. Nyberg

Aalto University

Multiple version iconThere are 2 versions of this paper

Date Written: February 12, 2019

Abstract

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

Keloharju, Matti and Linnainmaa, Juhani T. and Nyberg, Peter Mikael, Long-Term Discount Rates Do Not Vary Across Firms (February 12, 2019). 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 )

London
United Kingdom

Juhani T. Linnainmaa (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.tuck.dartmouth.edu/faculty/faculty-directory/juhani-linnainmaa

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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