Working Paper: NBER ID: w7396
Authors: Owen A. Lamont; Christopher Polk
Abstract: Diversified firms have different values than comparable portfolios of single-segment firms. These value differences must be due to differences in either future cash flows or future returns. Expected security returns on diversified firms vary systematically with relative value. Discount firms have significantly higher subsequent returns than premium firms. Slightly more than half of the cross-sectional variation in excess values is due to variation in expected future cash flows, with the remainder due to variation in expected future returns and to covariation between cash flow and returns.
Keywords: No keywords provided
JEL Codes: G12; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Diversified firms (L29) | different expected future returns (G17) |
| Diversification discount (G19) | higher subsequent returns (G11) |
| Variation in excess values (C29) | differences in expected returns (G19) |
| Variation in excess values (C29) | differences in expected cash flows (G19) |
| Cash flows and returns (G19) | valuation of diversified firms (G32) |