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...

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...

This paper examines whether and how differences in investors' information environment are related to cross-country differences in the market risk premium volatility. We use the vector-autoregressive and implied cost of capital methods to extract time variation in risk premiums for 41 developed...

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...

This paper uses analysts' forecasts to estimate a share's equity duration, a measure of a company's average cash-flow maturity. We find that short duration equity is associated with high expected and realized returns, which cannot be attributed to the shares' systematic risk exposure as implied...

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...

This paper estimates the implied cost of equity for Canadian and U.S. firms using a methodology based on the dividend discount model and utilizing firms' current stock price and analysts' forecasted earnings. We find that firm size and firm stock liquidity are negatively related to cost of...

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...

This article applies a unique accruals measure to empirically test whether accruals quality affects the cost of capital for property-liability insurers. We utilize insurer loss reserve errors to accurately measure the quality of accruals. This measure, as well as conventional accruals measures,...

This study uses the universe of US public firms to examine the impact of credit default swap (CDS) trading on a firm's cost of capital during the period 2001–2018. Our results robustly show that the inception of CDSs causes a significant reduction in a firm's weighted average cost of capital...