Discounting Under Uncertainty

A study is presented which supposes that asset pricing is governed by the CAPM or the ICAPM and the expected 1-period simple returns on the net cash flows (NCF) of investment projects are constant through time. The NCFs are then priced by discounting their expected values with their expected 1-period simple returns. However, when NCFs are priced by discounting their expected values with constant CAPM or ICAPM expected 1-period simple returns, distributions of NCFs more than 1-period are likely to be skewed right. Expected payoffs are then larger than median payoffs, and expected payoffs are then larger than median payoffs, and expected payoffs are progressively more unusual outcomes for longer investment horizons.