Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19114
Authors: 
Pesaran, Mohammad Hashem
Pettenuzzo, Davide
Timmermann, Allan
Year of Publication: 
2006
Series/Report no.: 
CESifo Working Paper 1650
Abstract: 
Present value calculations require predictions of cash flows both at near and distant future points in time. Such predictions are generally surrounded by considerable uncertainty and may critically depend on assumptions about parameter values as well as the form and stability of the data generating process underlying the cash flows. This paper presents new theoretical results for the existence of the infinite sum of discounted expected future values under uncertainty about the parameters characterizing the growth rate of the cash flow process. Furthermore, we explore the consequences for present values of relaxing the stability assumption in a way that allows for past and future breaks to the underlying cash flow process. We find that such breaks can lead to considerable changes in present values.
Subjects: 
present value
stock prices
structural breaks
Bayesian learning
JEL: 
G12
C11
G22
Document Type: 
Working Paper

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