The aim of this paper is to present the method for estimating the cost of capital of typical portfolios available on the Warsaw Stock Exchange. The authors introduce the three factor Fama-French model and its two modifications. They also apply the bootstrap method to evaluate the variability of...

We propose and test a new channel that links funding liquidity risk and interest rates in short-term funding markets. Borrowers with high liquidity risk are willing to pay a markup to lock in their funding, independent of risk premiums demanded by lenders. We test the channel using unique...

As reserve accumulation has gathered pace in recent years, and as foreign exchange (FX) reserve holdings have risen far above conventional measures of reserve adequacy, a vigorous debate has begun as to whether part of the reserves should be invested in riskier assets to reduce their financial...

Eaton Corporation, a diversified industrial conglomerate, had been changing its strategic focus and re-configuring its portfolio of businesses for the past 15 years. Through more than 70 acquisitions and 50 divestitures, Eaton had narrowed its strategic focus considerably and was now pursuing a...

This study provides evidence for a positive association between mutual fund holdings’implied cost of capital (ICC) and future performance. Consistent with large transactioncosts of ICC-based investments impeding their exploitation and employing a ICC-basedstrategy reflecting skill,...

This work is an attempt to estimate the cost of equity capital characteristic among portfolios of companies listed on the Warsaw Stock Exchange in the years 1995-2017. To this end, the classic CAPM is used to estimate the cost of risk. Model tests are based on 252 monthly returns. In order to...

Central banks and supervisory authorities regularly conduct stress tests of banks. As losses accumulate in stress scenarios, banks' equity position worsens, and they must pay higher interest rates to retain funding. I explore how variations of Merton-type models can be used to measure bank risk,...

We develop a dynamic model with time variation in external equity financing costs and show that variation in these costs is important for the model to quantitatively capture the joint dynamics of firms' asset prices, real quantities, and financial flows in the U.S. economy. Growth firms and high...

Traditional risk factor models indicate that hedge funds capture pre-fee alphas of 6% to 10% per annum over the period from 1996 to 2012. At the same time, the hedge fund return series is not reliably distinguishable from the returns of mechanical S&P 500 put-writing strategies. We show that the...

We test whether the diversification of marginal investor affects the underlying firm's cost of equity. We use institutional investor holdings data to identify the marginal investor. Compared with individual investors, institutional investors are more likely to be the marginal investor, given...