How to Discount Cashflows With Time - Varying Expected Returns  

Oleh:

Ang, Andrew ; Jun Liu

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Journal of Finance (EBSCO) vol. 59 no. 6 (Dec. 2004), page 2745-2784.
Topik: Cash flow; studies; discoutned cash flow; expected returns; mathematical models; valuation
Fulltext: p 2745.pdf (272.95KB)

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Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ88 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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Isi artikel

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 misvaluations, 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.

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