A parsimonious analytically specified general equilibrium structure that spans discount rates

Oghenovo A. Obrimah

Finance Research Letters, 2024, vol. 62, issue PB

Abstract: This study arrives at an analytical structure that spans cross-sections of discount rates. The structure is not tainted by an endogeneity that is characteristic of alternate approaches, namely the necessity of assumptions in respect of firms’ expected returns. The structure is ‘general equilibrium’, because it is facilitated by a ‘no arbitrage’ condition which serves to induce indifference between comparable assets that ought to have positive demand, but that differ with respect to the certainty equivalents of their cash flows. The finding that the structure spans discount rates that are increasing strictly convex functions of cash flow risk evinces it’s robustness.

Keywords: Equity risk premium; Discounted cash flow; Cash flow risk; Certainty equivalent; Arbitrage; Dividend yields (search for similar items in EconPapers)
JEL-codes: D81 D83 D84 G12 G17 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:62:y:2024:i:pb:s1544612324002824

DOI: 10.1016/j.frl.2024.105252

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