Presidential Address: Discount Rates

2011/07/19 by JOHN H. COCHRANE, John H. Cochrane · 2,318 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Capital asset pricing model #Capital budgeting #Cash flow #Dividend #Econometrics #Economics #Finance #Financial Markets and Investment Strategies #Financial Reporting and Valuation Research #Financial economics #Housing Market and Economics #Microeconomics #Modern portfolio theory #Portfolio #Variation (astronomy)

paper · doi:10.1111/j.1540-6261.2011.01671.x

published in The Journal of Finance 66(4), 1047-1108 (Wiley)

openalex publication_date 2011/07/19 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04

Abstract

ABSTRACT Discount‐rate variation is the central organizing question of current asset‐pricing research. I survey facts, theories, and applications. Previously, we thought returns were unpredictable, with variation in price‐dividend ratios due to variation in expected cashflows. Now it seems all price‐dividend variation corresponds to discount‐rate variation. We also 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. Incorporating discount‐rate variation affects finance applications, including portfolio theory, accounting, cost of capital, capital structure, compensation, and macroeconomics.

Citations

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• Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
• Liquidity Risk and Expected Stock Returns

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