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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

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

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

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

Accounting-Based Downside Risk, Cost of Capital, and the Macroeconomy

Konchitchki, Yaniv - 2015

We hypothesize that earnings downside risk, capturing the expectation for future downward operating performance, contains distinct information about firm risk and varies with cost of capital in the cross section of firms. Consistent with the validity of the earnings downside risk measure, we...

Persistent link: https://www.econbiz.de/10013020544

International Cost of Capital Estimation : The No-Arbitrage Method

McLelland, Malcolm - 2018

This study summarizes problems associated with existing international cost of capital (ICC) estimation methods; adapts … long-existing arbitrage pricing methods to ICC estimation to a setting where ICC is to be estimated for a privately …-held asset not traded in the capital markets; and then presents a semi-realistic example of ICC estimation for such non …

Persistent link: https://www.econbiz.de/10012919805

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

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

The Accuracy of CAPM Proxies for Estimating a Firm's Cost of Equity

Lally, Martin - 2010

In estimating a firm's cost of equity with the CAPM the standard procedure is to proxy the market portfolio by a share …

Persistent link: https://www.econbiz.de/10013149155

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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