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CAPM for Estimating the Cost of Equity Capital : Interpreting the Empirical Evidence

Da, Zhi - 2009

We argue that the empirical evidence against the Capital Asset Pricing Model (CAPM) based on stock returns does not … returns on stocks need not satisfy the CAPM even when expected returns of projects do. We provide empirical support for our … arguments by developing a method for estimating firms' project CAPM-betas and project returns. Our findings justify the …

Persistent link: https://www.econbiz.de/10012463759

Costs of Equity Capital and Model Mispricing

Pastor, Lubos - 1998

Costs of equity for individual firms are estimated in a Bayesian framework using several factor-based pricing models. Substantial prior uncertainty about mispricing often produces an estimated cost of equity close to that obtained with mispricing precluded, even for a stock whose average return...

Persistent link: https://www.econbiz.de/10012472312

Stock Market Returns and Consumption

Maggio, Marco Di - 2018

This paper employs Swedish data containing security level information on households' stock holdings to investigate how consumption responds to changes in stock market returns. We exploit households' portfolio weights in previous years as an instrument for actual capital gains and dividends...

Persistent link: https://www.econbiz.de/10012453452

Globalization of Equity Markets and the Cost of Capital

Stulz, Rene M. - 1999

This paper examines the impact of globalization on the cost of equity capital. We argue that the cost of equity capital decreases because of globalization for two important reasons. First, the expected return that investors require to invest in equity to compensate them for the risk they bear...

Persistent link: https://www.econbiz.de/10012471779

Consumption Risk and the Cost of Equity Capital

Jagannathan, Ravi - 2005

We demonstrate, using data for the period 1954-2003, that differences in exposure to consumption risk explains cross sectional differences in average excess returns (cost of equity capital) across the 25 benchmark equity portfolios constructed by Fama and French (1993). We use yearly returns on...

Persistent link: https://www.econbiz.de/10012467661

Cross-Border Valuation : The International Cost of Equity Capital

Bodnar, Gordon M. - 2003

How does a firm in one country evaluate an investment in a firm in another country, or how does it evaluate a foreign project that the firm itself is undertaking? The firm must estimate future free cash flows just as in a domestic project, but choosing an appropriate discount rate is a...

Persistent link: https://www.econbiz.de/10012468579

Do We Need CAPM for Capital Budgeting?

Jagannathan, Ravi - 2002

A key input to the capital budgeting process is the cost of capital. Financial managers most often use the CAPM for … for the U.S. equity premium as the market risk premium. The CAPM as a model has been seriously challenged in the academic …

Persistent link: https://www.econbiz.de/10012469996

Estimating the Intertemporal Risk-Return Tradeoff Using the Implied Cost of Capital

Pastor, Lubos - 2006

We reexamine the time-series relation between the conditional mean and variance of stock market returns. To proxy for the conditional mean return, we use the implied cost of capital, computed using analyst forecasts. The usefulness of this proxy is shown in simulations. In empirical analysis, we...

Persistent link: https://www.econbiz.de/10012466730

Foreign Speculators and Emerging Equity Markets

Bekaert, Geert - 1997

A number of countries have delayed the opening of their capital markets to international" investment because of reservations about the impact of foreign speculators on both expected" returns and market volatility. We propose a cross-sectional time-series model that attempts to" assess the impact...

Persistent link: https://www.econbiz.de/10012472501

Corporate Discount Rates

Gormsen, Niels; Huber, Kilian - National Bureau of Economic Research - 2023

Standard theory implies that the discount rates used by firms in investment decisions (i.e., their required returns to capital) determine investment and transmit financial shocks to the real economy. However, there exists little evidence on how firms' discount rates change over time and affect...

Persistent link: https://www.econbiz.de/10014322717

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