Long-Term Discount Rates Do Not Vary Across Firms

Long-term expected returns do not appear to vary in the cross section of stocks. We show that even negligible persistent differences in expected returns, if they existed, would be easy to detect. Markers of such differences, however, are absent from actual stock returns. Our results are consistent with behavioral models and production-based asset pricing models in which firms’ risks change over time. Consistent with the lack of long-term differences in expected returns, persistent differences in firm characteristics do not predict the cross section of stock returns. Our results imply that stock market anomalies have only a limited effect on firm valuations.