Discount Rates

John Cochrane

No 16972, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Discount rate variation is the central organizing question of current asset pricing research. I survey facts, theories and applications. We thought returns were uncorrelated over time, so variation in price-dividend ratios was due to variation in expected cashflows. Now it seems all price-dividend variation corresponds to discount-rate variation. We thought that the cross-section of expected returns came from the CAPM. Now we have a zoo of new factors. I categorize discount-rate theories based on central ingredients and data sources. Discount-rate variation continues to change finance applications, including portfolio theory, accounting, cost of capital, capital structure, compensation, and macroeconomics.

JEL-codes: G0 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-cba
Note: AP EFG
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Citations: View citations in EconPapers (39)

Published as Discount Rates: American Finance Association Presidential Address . Journal of Finance, 66, 1047 - 1108 , A ugust 2011.

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