NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Discount Rates

John H. Cochrane

NBER Working Paper No. 16972
Issued in April 2011
NBER Program(s):   AP   EFG

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.

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Document Object Identifier (DOI): 10.3386/w16972

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

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