Long-Term Discount Rates Do Not Vary Across Firms

51 Pages Posted: 26 Feb 2019 Last revised: 24 May 2023

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); Kepos Capital

Peter Nyberg

Aalto University - School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 2019

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 (2003) in which firms' risks change over time. We show that long-term reversals in stock returns are the consequence of the rapid convergence in expected returns. Our results imply stock market anomalies have only a limited effect on firm valuations.

Suggested Citation

Keloharju, Matti and Linnainmaa, Juhani T. and Nyberg, Peter, Long-Term Discount Rates Do Not Vary Across Firms (February 2019). NBER Working Paper No. w25579, Available at SSRN: https://ssrn.com/abstract=3341239

Matti Keloharju (Contact Author)

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

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

Kepos Capital ( email )

620 Eighth Avenue
New York, NY 10018
United States

Peter Nyberg

Aalto University - School of Business ( email )

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

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