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When Capital Asset pricing Model (CAPM) is considered as valid asset pricing theory, Security Market Line (SML) is …
Persistent link: https://www.econbiz.de/10013081162
Using data from a decade of surveys of corporate managers, I find evidence that firms with higher expected stock returns have a higher perceived cost of equity and use higher discount rates in capital budgeting. Variation in expected stock returns, as measured by exposure to equity risk factors,...
Persistent link: https://www.econbiz.de/10013244072
To value shares there are two usual methods that, if properly applied, provide the same value: 1/ Present value of expected free cash flows (FCF) discounted with the WACC rate and then, subtract the value of debt; and 2/ Present value of expected equity cash flows (ECF) discounted with the Ke...
Persistent link: https://www.econbiz.de/10012704170
This paper presents a real valuation performed by a well-known investment bank, with two common errors and with two very different values for the equity of a firm:a) €6,9 million calculating the Present Value of expected free cash flows (FCF) discounted with the WACC rate and then, subtracting...
Persistent link: https://www.econbiz.de/10012704176
We evaluate the influence of measurement error in analysts' forecasts on the accuracy of implied cost of capital estimates from various implementations of the ‘implied cost of capital' approach, and develop corrections for the measurement error. We document predictable error in the implied...
Persistent link: https://www.econbiz.de/10013114798
The capital asset pricing model (CAPM) receives both criticism and widespread adoption by practitioners and academics as the weighted average cost of capital (WACC) equity component. This study introduces two new costs of equity measures to address CAPM criticisms and provide new perspective on...
Persistent link: https://www.econbiz.de/10011597398
We examine the relationship between stock extreme illiquidity and the implied cost of capital for firms from 45 countries. We document robust evidence that firms whose stocks have a greater potential for extreme illiquidity realizations suffer from higher cost of capital. A one standard...
Persistent link: https://www.econbiz.de/10012922232
Based on the insight that risk exposure as quantified in the consumption based asset pricing model (CCAPM) is linearly proportional to the cash flow growth rate, we introduce a discounted cash flow model with a time-varying expected return structure matching the implicitly assumed risk exposure...
Persistent link: https://www.econbiz.de/10012487967
The research aimed to check whether investment fund managers maintain costs similarly from period to period. The research verified the hypothesis that managers maintain costs in the subsequent periods at a similar level. The study used a method based on contingency tables which are used to...
Persistent link: https://www.econbiz.de/10013252655
Which trading strategies differentiate skilled mutual fund managers from their unsuccessful peers? This study provides evidence for a positive association between holdings' implied cost of capital (ICC) and future fund performance. Consistent with large transaction costs of ICC-based investments...
Persistent link: https://www.econbiz.de/10012840019