• Media type: E-Book
  • Title: How to Discount Cashflows with Time-Varying Expected Returns
  • Contributor: Ang, Andrew [Author]; Liu, Jun [Other]
  • Corporation: National Bureau of Economic Research
  • Published: Cambridge, Mass: National Bureau of Economic Research, October 2003
  • Published in: NBER working paper series ; no. w10042
  • Extent: 1 Online-Ressource
  • Language: English
  • DOI: 10.3386/w10042
  • Identifier:
  • Reproduction note: Hardcopy version available to institutional subscribers
  • Origination:
  • Footnote: Mode of access: World Wide Web
    System requirements: Adobe [Acrobat] Reader required for PDF files
  • Description: While many studies document that the market risk premium is predictable and that betas are not constant, the dividend discount model ignores time-varying risk premiums and betas. We develop a model to consistently value cashflows with changing risk-free rates, predictable risk premiums and conditional betas in the context of a conditional CAPM. Practical valuation is accomplished with an analytic term structure of discount rates, with different discount rates applied to expected cashflows at different horizons. Using constant discount rates can produce large mis-valuations, which, in portfolio data, are mostly driven at short horizons by market risk premiums and at long horizons by time-variation in risk-free rates and factor loadings
  • Access State: Open Access