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A parsimonious analytically specified general equilibrium structure that spans discount rates.
- Source :
- Finance Research Letters; Apr2024:Part B, Vol. 62, pN.PAG-N.PAG, 1p
- Publication Year :
- 2024
-
Abstract
- This study arrives at an analytical structure that spans cross-sections of discount rates. The structure is not tainted by an endogeneity that is characteristic of alternate approaches, namely the necessity of assumptions in respect of firms' expected returns. The structure is 'general equilibrium', because it is facilitated by a 'no arbitrage' condition which serves to induce indifference between comparable assets that ought to have positive demand, but that differ with respect to the certainty equivalents of their cash flows. The finding that the structure spans discount rates that are increasing strictly convex functions of cash flow risk evinces it's robustness. • Existing approaches to the estimation of discount rates embed endogeneity. • Endogeneity is induced by the necessity of assumptions of expected returns. • This study arrives at a structure that is lacking in the stated endogeneity. • Relative to risk, the structure spans the entire cross-section of discount rates. • Simulation tests corroborate the robustness of the new structure. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 15446123
- Volume :
- 62
- Database :
- Supplemental Index
- Journal :
- Finance Research Letters
- Publication Type :
- Academic Journal
- Accession number :
- 176439956
- Full Text :
- https://doi.org/10.1016/j.frl.2024.105252