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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

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

Implied Cost of Capital versus Fundamental Valuation Efficiency : A Clarification and Empirical Implications

Cheng, C.S. Agnes - 2019

As the proxy for expected return, the implied cost of capital (ICC) is subject to a mispricing-driven measurement error because the price of a stock used to compute ICC can deviate from its intrinsic value. For undervalued stocks, the mispricing-driven measurement error is positive and increases...

Persistent link: https://www.econbiz.de/10012901012

Implied Cost of Capital versus Fundamental Valuation Efficiency : A Clarification and Empirical Implications

Fang, Jing - 2019

As the proxy for expected return, the implied cost of capital (ICC) is subject to a mispricing-driven measurement error. For undervalued stocks, the mispricing-driven measurement error is positive and increases with the degree of undervaluation while for overvalued stocks, the mispricing-driven...

Persistent link: https://www.econbiz.de/10012859834

Income Smoothing, Information Uncertainty, Stock Returns, and Cost of Equity

Chen, Linda H. - 2018

This paper examines the effect of income smoothing on information uncertainty, stock returns, and cost of equity. I show that income smoothing through both total accruals and discretionary accruals tends to reduce firms' information uncertainty, as measured by stock return volatility, analyst...

Persistent link: https://www.econbiz.de/10012938674

Bear Beta or Speculative Beta?—Reconciling the Evidence on Downside Risk Premium

Wang, Tong - 2022

This paper develops a new approach to explain why risk factors constructed from option returns are priced in the stock market. We decompose an option- based factor into three main components and identify the one responsible for the beta-return relationship. Applying this method to the bear risk...

Persistent link: https://www.econbiz.de/10013305706

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

Which Measure of Aggregate Implied Cost of Capital Predicts Equity Market Returns?

Cooper, Ian A. - 2016

We investigate the relative ability of two measures of the market implied cost of capital to predict aggregate equity market returns. One is Aggregate ICC, which is a weighted average of individual firms' ICC's. The other is ICC calculated using index information (Index ICC). Index ICC predicts...

Persistent link: https://www.econbiz.de/10012991578

Probability of Price Crashes, Rational Speculative Bubbles, and the Cross-Section of Stock Returns

Jang, Jeewon - 2018

We estimate an ex ante probability of extreme negative returns (crashes) of individual stocks as a measure of potential overpricing and find that stocks with a high probability of crashes earn abnormally low returns. Stocks with high crash probability are overpriced regardless of the level of...

Persistent link: https://www.econbiz.de/10012931108

Seasonally Varying Preferences : Theoretical Foundations for an Empirical Regularity

Kamstra, Mark J. - 2014

We investigate an asset pricing model with preferences cycling between high risk aversion and low EIS in fall/winter and the reverse in spring/summer. Calibrating to consumption data and allowing plausible preference parameter values, we produce returns that match observed equity and Treasury...

Persistent link: https://www.econbiz.de/10013068403

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