Time variation in the discount rate affects investment and employment decisions in a manner consistent with Q-theory predictions. This evidence is uncovered when using cyclical consumption as proxy for the discount rate. The results, which are consistent across both U.S. and international data,...

The consumption-based asset pricing model with constant relative risk aversion explains the size and value premiums in US data over the period 1929 to 2014. The timing convention used for consumption is crucial for this result. The model matches the cross-sectional variation in mean returns on...

We show that time variation in the discount rate affects investment and employment decisions in a manner consistent with both short and long run Q-theory predictions. Uncovering this novel evidence requires a proxy for the discount rate that reliably predicts stock returns. We gain further...