Despite their popularity as proxies of expected returns, the implied cost of capital's (ICC) measurement error properties are relatively unknown. Through an in-depth analysis of a popular implementation of ICCs by Gebhardt, Lee, and Swaminathan (2001) (GLS), I show that ICC measurement errors...

We provide a tractable model of firm-level expected holding period returns using two firm fundamentals ― book-to-market ratio and ROE ― and study the cross-sectional properties of the model-implied expected returns. We find that: 1) firm level expected returns and expected profitability are...