The Diversification Discount: Cash Flows vs. Returns

Owen Lamont and Christopher Polk

No 7396, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Diversified firms have different values than comparable portfolios of single-segment firms. These value differences must be due to differences in either future cash flows or future returns. Expected security returns on diversified firms vary systematically with relative value. Discount firms have significantly higher subsequent returns than premium firms. Slightly more than half of the cross-sectional variation in excess values is due to variation in expected future cash flows, with the remainder due to variation in expected future returns and to covariation between cash flow and returns.

JEL-codes: G12 G34 (search for similar items in EconPapers)
Date: 1999-10
New Economics Papers: this item is included in nep-cfn
Note: AP CF ME
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Citations: View citations in EconPapers (5)

Published as Lamont, Owen A. and Christopher Polk. "The Diversification Discount: Cash Flows Versus Returns," Journal of Finance, 2001, v56(5,Oct), 1693-1721.

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