Learning, Structural Instability and Present Value Calculations

Mohammad Pesaran, Davide Pettenuzzo () and Allan Timmermann

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: Present value calculations require predictions of cash flows both at near and distant future points in time. Such predictions are generally surrounded by considerable uncertainty and may critically depend on assumptions about parameter values as well as the form and stability of the data generating process underlying the cash flows. This paper presents new theoretical results for the existence of the infinite sum of discounted expected future values under uncertainty about the parameters characterizing the growth rate of the cash flow process. Furthermore, we explore the consequences for present values of relaxing the stability assumption in a way that allows for past and future breaks to the underlying cash flow process. We find that such breaks can lead to considerable changes in present values.

Keywords: present value; stock prices; structural breaks; Bayesian learning (search for similar items in EconPapers)
JEL-codes: C11 G12 G22 (search for similar items in EconPapers)
Pages: 33
Date: 2006-01
New Economics Papers: this item is included in nep-fin
Note: Em
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
https://files.econ.cam.ac.uk/repec/cam/pdf/cwpe0602.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Journal Article: Learning, Structural Instability, and Present Value Calculations (2007)
Working Paper: Learning, Structural Instability and Present Value Calculations (2006)
Working Paper: Learning, structural instability and present value calculations (2006)
Working Paper: Learning, Structural Instability and Present Value Calculations (2006)
Working Paper: Learning, structural instability and present value calculations (2006)
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:cam:camdae:0602

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().