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Speculative Stock Price and Inadequacy of the Implied Cost of Capital as a Proxy for Expected Return
Fong, Robert - 2020
The implied cost of capital (ICC), the internal rate of return that equates speculative stock price to discounted expected future dividends, includes a mispricing-driven component in addition to expected return. The estimated relation of a mispricing-associated factor (X) with ICC is thus a...
Persistent link: https://www.econbiz.de/10012839261
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Expected stock returns worldwide : a log-linear present-value approach
Chattopadhyay, Akash; Lyle, Matthew R.; Wang, Charley C. Y. - 2018
We provide the first large-scale study of the performance of expected-return proxies (ERPs) internationally. Analyst-forecast-based ICCs are sparsely populated and not robustly associated with future returns. Earnings-model-forecast-based ICCs are well-populated, but are unreliable outside the...
Persistent link: https://www.econbiz.de/10011931329
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CAPM and DCF : Does SML Relationship Gives Cost of Equity? – Ex-Ante Stock Returns are Not Same as Implied Discount Rates
Murugesan, Narayanaswamy - 2013
When Capital Asset pricing Model (CAPM) is considered as valid asset pricing theory, Security Market Line (SML) is … returns need not be same as implied discount rates even when CAPM is applicable and markets are efficient. This is because the … over the forecast period. The single period return of CAPM changes every year as the market changes with economic …
Persistent link: https://www.econbiz.de/10013081162
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Do you really know your cost of capital?
Keloharju, Matti; Linnainmaa, Juhani; Nyberg, Peter - 2021
Conventional wisdom, reflected in firm, investment bank, and court practice and the way academics teach corporate finance, suggests that the equity cost of capital varies considerably across firms. This practice builds on a vast amount of evidence on expected rate of return differences between...
Persistent link: https://www.econbiz.de/10012816634
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Dynamical internal cost of capital driven by cash flow growth
Solo, David; Sornette, Didier; Ulmann, Florian Michael Till - 2021
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
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Noise and Deficiency of the Implied Cost of Capital as an Expected Return Proxy
Cheng, Agnes; Fang, Jing - 2022
Because stock price generally deviates from the intrinsic value, stock price is a noisy indicator of the intrinsic value. As an expected return proxy, the implied cost of capital (ICC)—the internal rate of return that equates the noisy stock price to discounted expected future dividends—thus...
Persistent link: https://www.econbiz.de/10014361606
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Implied Cost of Capital and Mutual Fund Performance
Hendriock, Mario - 2020
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
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Illiquidity and the cost of equity capital : evidence from actual estimates of capital cost for U.S. data
Goyal, Amit; Subrahmanyam, Avanidhar; Swaminathan, Bhaskaran - 2021
Illiquidity measures appear to be related to monthly realized returns but do they impact long-run costs of capital (CoC) for firms? Using U.S. data, we find cross-sectional evidence that, controlling for market capitalization, the Amihud (2002) measure of illiquidity is negatively related to CoC...
Persistent link: https://www.econbiz.de/10012800436
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A look at the actual cost of capital of US firms
Moore, David J. - In: Cogent economics & finance 4 (2016) 1, pp. 1-15
The capital asset pricing model (CAPM) receives both criticism and widespread adoption by practitioners and academics … to address CAPM criticisms and provide new perspective on WACC estimates. The firm-based measure focuses on firm …-based WACC measures, along with the traditional CAPM-based WACC measure, to a broad sector-based cross section from 1972 to 2015 …
Persistent link: https://www.econbiz.de/10011597398
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Using the ICAPM to estimate the cost of capital of stock portfolios: empirical evidence on the Warsaw Stock Exchange
Urba´nski, Stanislaw; Leśkow, Jacek - In: Statistics in transition : an international journal of … 21 (2020) 1, pp. 73-94
apply the bootstrap method to evaluate the variability of their estimation method. The cost of capital they refer to is …
Persistent link: https://www.econbiz.de/10012183556