Implied cost of capital has been a research method to measure ex-ante market risk premia using analysts' forecasts and observable share prices. Despite its theoretical appeal, commonly used firm level as well as portfolio level implied cost of capital methods reveal differing empirical results....

In this paper, we illuminate the importance of accounting conservatism adjustments when estimating the implied cost of capital (ICC) with the Residual Income Valuation (RIV) and the Abnormal Earnings Growth (AEG) model. Specifically, we adjust for three main limitations in the research of ICC,...

We outline analytically that when testing different implied cost of capital (ICC) measures for validation by employing the Vuolteenaho (2002) framework, the cash-flow news in the validation framework should be defined in a way that considers the model specific assumed sequence of future cash...

Private information imposes a severe trading disadvantage on uninformed traders while at the same time providing firms with valuable signals for investment adjustment. The two forces have opposite impacts on the cost of capital, and the net effect depends on which force dominates. We show that...

We find that a composite implied cost of capital (ICC) estimate - based on the earnings forecasts generated by cross-sectional models is highly correlated with future realised returns in both portfolio- and regression-based tests. By contrast, we find very little evidence for an association with...

We provide strong support for the underappreciated expected earnings hypothesis of negative correlation between aggregate stock returns and earnings (Sadka and Sadka (2009); Choi, Kalay, and Sadka (2016)). For the 1970 to 2000 period studied by Kothari, Lewellen, and Warner (2006), our powerful...

This paper studies whether illiquidity affects the predictability of fundamental valuation variables. Firm-level, cross-sectional analyses show that returns of illiquid stocks contain less information about their firm's future earnings growth compared to those of more liquid stocks. A natural...

Using monthly data from 01/1985 to 12/2012, we find that the accounting valuation-based predictor introduced in Lee, Myers, and Swaminathan (1999) has excellent in-sample and out-of-sample predictive performance. Our finding suggests that the accounting valuation-based predictor does not suffer...