Why do discount rates vary?

Serhiy Kozak and Shrihari Santosh

Journal of Financial Economics, 2020, vol. 137, issue 3, 740-751

Abstract: The price of discount rate risk reveals whether increases in equity risk premia represent good or bad news to rational investors. Employing a new empirical methodology, we find that the price is negative, which suggests that discount rates are high during times of high marginal utility of wealth. Our approach relies on using future realized market returns to consistently estimate covariances of asset returns with the market risk premium. Covariances drive observed patterns in a broad cross section of stock and bond expected returns.

Keywords: Risk premium; CAPM; ICAPM; Discount rates; Hedging demand (search for similar items in EconPapers)
JEL-codes: G12 G14 G40 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X20300854
Full text for ScienceDirect subscribers only

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:eee:jfinec:v:137:y:2020:i:3:p:740-751

DOI: 10.1016/j.jfineco.2020.04.004

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().