This paper tests international asset pricing models using firm level expected returns estimated from the implied cost of capital approach and contrasts the results with those based on realized returns. Among G7 countries, we find that the implied cost of capital based expected returns are only...

We argue that the implied cost of capital (ICC), computed using earnings forecasts, is useful in capturing time variation in expected stock returns. First, we show theoretically that ICC is perfectly correlated with the conditional expected stock return under plausible conditions. Second, our...

This study presents a new methodology for estimating international cost of capital. Using a discounted cash flow model, we estimate market implied risk premia for firms in the G-7 countries during the 1990 to 2000 time period. We find that the average risk premia in G-7 countries typically fall...

This paper tests international asset pricing models using firm-level expected returns estimated from an implied cost of capital approach. We show that the implied approach provides clear evidence of economic relations that would otherwise be obscured by the noise in realized returns. Among G-7...

A company's industry affiliation is commonly used to construct homogeneous stock groupings for portfolio risk management, relative valuation, and peer-group comparisons. A variety of industry classification systems have been adopted, however, creating disagreements as to companies' industry...

Firms that increase (decrease) dividends experience a significant decline (increase) in their systematic risk. The dividend-increasing firms do not increase their capital expenditure and experience a decline in profitability in the years after the dividend change. The positive market reaction to...

In this study, we propose an alternative technique for estimating the cost of equity capital. Specifically, we use a discounted residual income model to generate a market implied cost-of-capital. We then examine firm characteristics that are systematically related to this estimate of...

This paper finds that trading volume is a significant determinant of the lead-lag patterns observed in stock returns. Daily and weekly returns on high volume portfolios lead returns on low volume portfolios, controlling for firm size. Nonsynchronous trading or low volume portfolio...

We model the time-series relation between price and intrinsic value as a cointegrated system, so that price and value are long-term convergent. In this framework, we compare the performance of alternative estimates of intrinsic value for the Dow 30 stocks. During 1963-96, traditional market...

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...