The Term Structure of Implicit Discount Rates in Security Valuation

Neil Garrod and Aljosa Valentincic

Journal of Business Finance & Accounting, 2005, vol. 32, issue 7‐8, 1237-1274

Abstract: Abstract: A reformulation of the residual income model is used to generate estimates of discount rates implicit in UK security prices. The terminal value of the infinite valuation model is incorporated into the coefficient on current earnings. By varying the length of the forecast horizon, different combinations of implicit discount rates are revealed that allow the estimation of time‐variant costs of equity. Results indicate no specific pattern of discount rates, thus revealing neither myopia on short‐term earnings nor excessive optimism on long(er)‐term earnings. Surprisingly, there is weak evidence that if any myopia exists, it is concentrated in larger and lower price‐earnings firms.

Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1111/j.0306-686X.2005.00628.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:32:y:2005:i:7-8:p:1237-1274

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X

Access Statistics for this article

Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().