Download or read book Measuring Expected Stock Returns The Implied Cost of Capital and Its Applications written by Katja Mara Vanessa Mühlhäuser and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Measuring Ecpected Stock Returns written by Katja Mara Vanessa Mühlhäuser and published by . This book was released on 2013 with total page 430 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Cost of Capital written by Shannon P. Pratt and published by John Wiley & Sons. This book was released on 2010-11-04 with total page 794 pages. Available in PDF, EPUB and Kindle. Book excerpt: Praise for Cost of Capital, Fourth Edition "This book is the most incisive and exhaustive treatment of this critical subject to date." —From the Foreword by Stephen P. Lamb, Esq., Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP, and former vice chancellor, Delaware Court of Chancery "Cost of Capital, Fourth Edition treats both the theory and the practical applications from the view of corporate management and investors. It contains in-depth guidance to assist corporate executives and their staffs in estimating cost of capital like no other book does. This book will serve corporate practitioners as a comprehensive reference book on this challenging topic in these most challenging economic times." —Robert L. Parkinson Jr., Chairman and Chief Executive Office, Baxter International Inc., and former dean, School of Business Administration and Graduate School of Business, Loyola University of Chicago "Shannon Pratt and Roger Grabowski have consolidated information on both the theoretical framework and the practical applications needed by corporate executives and their staffs in estimating cost of capital in these ever-changing economic times. It provides guidance to assist corporate practitioners from the corporate management point of view. For example, the discussions on measuring debt capacity is especially timely in this changing credit market environment. The book serves corporate practitioners as a solid reference." —Franco Baseotto, Executive Vice President, Chief Financial Officer, and Treasurer, Foster Wheeler AG "When computing the cost of capital for a firm, it can be fairly said that for every rule, there are a hundred exceptions. Shannon Pratt and Roger Grabowski should be credited with not only defining the basic rules that govern the computation of the cost of capital, but also a road map to navigate through the hundreds of exceptions. This belongs in every practitioner's collection of must-have valuation books." —Aswath Damodaran, Professor, Stern School of Business, New York University "Pratt and Grabowski have done it again. Just when you thought they couldn't possibly do a better job, they did. Cost of Capital, Fourth Edition is a terrific resource. It is without a doubt the most comprehensive book on this subject today. What really distinguishes this book from other such texts is the fact that it is easy to read—no small feat given the exhaustive and detailed research and complicated subject matter. This book makes you think hard about all the alternative views out there and helps move the valuation profession forward." —James R. Hitchner, CPA/ABV/CFF, ASA, Managing Director, Financial Valuation Advisors; CEO, Valuation Products and Services; Editor in Chief, Financial Valuation and Litigation Expert; and President, Financial Consulting Group "The Fourth Edition of Cost of Capital continues to be a 'one-stop shop' for background and current thinking on the development and uses of rates of return on capital. While it will have an appeal for a wide variety of constituents, it should serve as required reading and as a reference volume for students of finance and practitioners of business valuation. Readers will continue to find the volume to be a solid foundation for continued debate and research on the topic for many years to come." —Anthony V. Aaron, Americas Leader, Quality and Risk Management, Ernst & Young Transaction Advisory Services
Download or read book Estimating the Cost of Capital Implied by Market Prices and Accounting Data written by Peter Easton and published by Now Publishers Inc. This book was released on 2009 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt: Estimating the Cost of Capital Implied by Market Prices and Accounting Data focuses on estimating the expected rate of return implied by market prices, summary accounting numbers, and forecasts of earnings and dividends. Estimates of the expected rate of return, often used as proxies for the cost of capital, are obtained by inverting accounting-based valuation models. The author describes accounting-based valuation models and discusses how these models have been used, and how they may be used, to obtain estimates of the cost of capital. The practical appeal of accounting-based valuation models is that they focus on the two variables that are commonly at the heart of valuations carried out by equity analysts -- forecasts of earnings and forecasts of earnings growth. The question at the core of this monograph is -- How can these forecasts be used to obtain an estimate of the cost of capital? The author examines the empirical validity of the estimates based on these forecasts and explores ways to improve these estimates. In addition, this monograph details a method for isolating the effect of any factor of interest (such as cross-listing, fraud, disclosure quality, taxes, analyst following, accounting standards, etc.) on the cost of capital. If you are interested in understanding the academic literature on accounting-based estimates of expected rate of return this monograph is for you. Estimating the Cost of Capital Implied by Market Prices and Accounting Data provides a foundation for a deeper comprehension of this literature and will give a jump start to those who have an interest in these topics. The key ideas are introduced via examples based on actual forecasts, accounting information, and market prices for listed firms, and the numerical examples are based on sound algebraic relations.
Download or read book Commentary on Implied Cost of Equity Capital Estimates as Predictors of Accounting Returns and Stock Returns written by Charles C. Y. Wang and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The expected rate of equity returns is a central input into various managerial and investment decisions that affect the allocation of scarce resources. Research on capital markets has devoted significant effort to studying how and why expected returns vary over time and across firms. Cochrane (2011) called these questions the central organizing agenda in contemporary asset-pricing research.At the heart of this research agenda lies a longstanding measurement problem: ex-ante expected returns are unobservable and ex-post realized returns are noisy proxies (Campbell, 1991; Vuolteenaho, 2002). Since Botosan (1997), the accounting literature offered a promising solution to this measurement problem: the development of a novel class of expected-return proxies (ERPs), collectively known as the implied cost of equity capital (ICC).
Download or read book CFROI Valuation written by Bartley Madden and published by Elsevier. This book was released on 1999-02-15 with total page 385 pages. Available in PDF, EPUB and Kindle. Book excerpt: What generates shareholder value? How can it be evaluated? How can it influence investment decisions and corporate strategy? Cash Flow Return On Investment answers all these questions by detailing the pioneering financial research carried out by HOLT Value Associates, the leading consultancy in the field. Read this book if you want to find out what really drives the wealth generation in any business, allowing you to pick which equities will succeed and which strategic initiatives are destined for high returns. The CFROI model is an essential tool for professionals working in finance and corporate strategy. It clarifies how economic value is created in a firm and acts as a reliable guide to: * making investment decisions * taking key strategic decisions * understanding economic value Shows how to judge and compare individual equities across markets and company sectors Cutting edge theory and practice The leading book about shareholder value authored by one of the world's leading consultancies in the field
Download or read book Implied Cost of Equity Capital Estimates as Predictors of Accounting Returns and Stock Returns written by Stephannie Larocque and published by . This book was released on 2017 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a popular return decomposition, we show that expected returns should on average be positively associated with future return on equity (ROE), controlling for the book-to-market ratio (BM). However, we find that none of the commonly-used implied cost of equity capital estimates (ICCs), which proxy for expected returns, are positively associated with future ROE. This lack of association with future accounting returns appears to affect the ability of ICCs to forecast future stock returns: ICCs do not provide information about future stock returns incremental to that contained in a linear combination of current ROE and BM. Our findings suggest that tractable accounting-based models that linearly combine BM and ROE, or other accounting-based variables, offer improvements on extant ICCs as expected returns proxies.
Download or read book Properties of Implied Cost of Capital Using Analysts Forecasts written by Wayne R. Guay and published by . This book was released on 2012 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We evaluate the influence of measurement error in analysts' forecasts on the accuracy of implied cost of capital estimates from various implementations of the 'implied cost of capital' approach, and develop corrections for the measurement error. The implied cost of capital approach relies on analysts' short- and long-term earnings forecasts as proxies for the market's expectation of future earnings, and solves for the implied discount rate that equates the present value of the expected future payoffs to the current stock price. We document predictable error in the implied cost of capital estimates resulting from analysts' forecasts that are sluggish with respect to information in past stock returns. We propose two methods to mitigate the influence of sluggish forecasts on the implied cost of capital estimates. These methods substantially improve the ability of the implied cost of capital estimates to explain cross-sectional variation in future stock returns, which is consistent with the corrections being effective in mitigating the error in the estimates due to analysts' sluggishness.
Download or read book On the Relation Between Expected Returns and Implied Cost of Capital written by John S. Hughes and published by . This book was released on 2008 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we examine the relation between implied cost of capital and expected returns under an assumption that expected returns are stochastic, a property supported by theory and empirical evidence. We demonstrate that implied cost of capital differs from expected return, on average, by a function encompassing volatilities of, as well as correlation between, expected returns and cash flows, growth in cash flows, and leverage. These results provide alternative explanations for findings from empirical studies employing implied cost of capital on the magnitude of the market risk premium; relations between cost of capital, growth, leverage, and idiosyncratic risks; predictability of future returns, and characteristics of the firm's information environment.
Download or read book Alphanomics written by Charles Lee and published by Now Publishers. This book was released on 2015-12-16 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt: Alphanomics: The Informational Underpinnings of Market Efficiency is intended to be a compact introduction to academic research on market efficiency, behavioral finance, and fundamental analysis and is dedicated to the kind of decision-driven and prospectively-focused research that is much needed in a market constantly seeking to become more efficient. The authors refer to this type of research as Alphanomics, the informational economics behind market efficiency. Alpha refers to the abnormal returns, which provide the incentive for some subpopulation of investors to engage in information acquisition and costly arbitrage activities. Nomics refers to the economics of alpha extraction, which encompasses the costs and incentives of informational arbitrage as a sustainable business proposition. Some of the questions that are addressed include: why do we believe markets are efficient?; what problems have this belief engendered?; what factors can impede and/or facilitate market efficiency?; what roles do investor sentiment and costly arbitrage play in determining an equilibrium level of informational efficiency?; what is the essence of value investing?; how is it related to fundamental analysis (the study of historical financial data)?; and how might we distinguish between risk and mispricing based explanations for predictability patterns in returns? The first two sections review the evolution of academic thinking on market efficiency and introduce the noise trader model as a rational alternative. Section 3 surveys the literature on investor sentiment and its role as a source of both risks and returns. Section 4 discusses the role of fundamental analysis in value investing. Section 5 reviews the literature on limits to arbitrage, and section 6 discusses research methodology issues associated with the need to distinguish mispricing from risk.
Download or read book Implied Cost of Capital in the Cross Section of Stocks written by Namho Kang and published by . This book was released on 2017 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent research shows that the implied cost of capital (ICC), measured from analyst forecasts and current stock prices, positively predicts returns at the aggregate level. In contrast, there is a strong negative relation between ICC and future returns in the cross-section. We hypothesize that mispricing due to optimistic analyst forecasts and earnings uncertainty renders ICC a poor proxy for expected returns, leading to the negative cross-sectional relation. Consistent with this hypothesis, we find that (1) high-ICC firms tend to have more optimistic analyst forecasts; (2) the underperformance of high-ICC firms is pronounced for firms with a high predictable analyst bias; and (3) mispricing due to earnings uncertainty further strengthens the negative relation between ICC and future returns. The findings suggest that not only bias in analyst forecasts but also mispricing may significantly affect the estimation of ICC at the firm level.
Download or read book Which Measure of Aggregate Implied Cost of Capital Predicts Equity Market Returns written by Ian A. Cooper and published by . This book was released on 2016 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 market returns more robustly than Aggregate ICC. Using 11 countries we show that predictability occurs only at longer horizons. The characteristics of Index ICC are consistent with it capturing the time-series variation of the long-run expected return.
Download or read book Estimating the Intertemporal Risk return Tradeoff Using the Implied Cost of Capital written by Luboš Pástor and published by . This book was released on 2006 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 construct the time series of the implied cost of capital for the G-7 countries. We find strong support for a positive intertemporal mean-variance relation at both the country level and the world market level. Some of our evidence is consistent with international integration of the G-7 financial markets.
Download or read book Cost of Capital written by Shannon P. Pratt and published by John Wiley & Sons. This book was released on 2003-02-28 with total page 354 pages. Available in PDF, EPUB and Kindle. Book excerpt: An authoritative text on cost of capital for both the nonprofessional and the valuation expert -- now revised and expanded In endeavoring to practice sound corporate finance, there is perhaps nothing so critical, nor slippery, as cost of capital estimation. The second edition of Cost of Capital: Estimation and Applications combines a state-of-the-art treatise on cost of capital estimation with an accessible introduction for the nonprofessional. This comprehensive yet usable guide begins with an exposition of basic concepts understandable to the lay person and proceeds gradually from simple applications to the more complex procedures commonly found in the marketplace. New features of the revised and expanded Second Edition include chapters on Economic Value Added (EVA) and reconciling cost of capital in the income approach with valuation multiples in the market approach, as well as expanded coverage of cost of capital in the courts and handling discounts for marketability. Cost of Capital remains an incomparable resource for all parties interested in effective business valuation.
Download or read book Implied Cost of Capital Versus Fundamental Valuation Efficiency written by C.S. Agnes Cheng and published by . This book was released on 2019 with total page 122 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 with the degree of undervaluation while for overvalued stocks, the mispricing-driven measurement error is negative and decreases with the degree of overvaluation. Therefore, ceteris paribus, lower ICC is equivalent to higher (lower) fundamental valuation efficiency (FVE) for undervalued (overvalued) stocks. Furthermore, our evidence, based on 11 constructs, shows that the estimated relation of an FVE-associated construct with ICC is a potentially biased estimate of its relation with expected return because its estimated relation with ICC also captures its relation with the mispricing-driven measurement error, the sign of which switches between undervalued and overvalued stocks. Existing methods do not seem able to address the bias.
Download or read book Is Beta Still Useful Over a Longer Horizon written by Wenyun Shi and published by . This book was released on 2017 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Despite the crucial role of the market factor in Fama and French's three-factor model, the market beta has failed to explain the cross-sectional differences in expected returns proxied by the future realized returns of individual stocks. However, current evidence does not necessarily reject the explanatory power of the market beta in expected returns over longer-horizons. We use the future implied costs of capital as the proxy instead of future realized returns in order to link beta to longer-horizon expected returns. In contrast to the current results we find that the future implied cost of capital is both positively and significantly related to the conventional beta estimate, implying that beta could still explain future cross-sectional expected return differences. Moreover, uncertainty risk could be important when focusing on longer-horizons. We propose using analyst dispersion as a proxy for the uncertainty risk, and find that it strongly predicts future implied cost of capital as well. Furthermore, some prior studies have shown that the failure of beta in explaining cross-sectional return differences over a shorter-horizon is due to the lack of forward-looking information. Since changes in the implied cost of capital contain such unique information, we propose a simple adjustment to the conventional beta measure. The explanatory power of the adjusted beta for future return differences is accordingly proved to be strong.
Download or read book Portfolio Theory and Capital Markets written by William F. Sharpe and published by McGraw-Hill Companies. This book was released on 2000 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Thirty years ago, Portfolio Theory and Capital Markets laid the groundwork for today's investment standards, from modern portfolio theory to derivatives, pricing and investment, equity index funds, and more. By providing invaluable insights into the Capital Asset Pricing Model (CAPM) and introducing such innovations as the Sharpe Ratio, Dr. William Sharpe established himself as one of the most influential financial minds of the twentieth century. Now, in Portfolio Theory and Capital Markets, The Original Edition, complete with a new foreword written by Dr. Sharpe, McGraw-Hill reintroduces this essential book - and places its lessons in a meaningful context for modern investors throughout the world."--BOOK JACKET.Title Summary field provided by Blackwell North America, Inc. All Rights Reserved
