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- W2024562123 abstract "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." @default.
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- W2024562123 date "2008-01-01" @default.
- W2024562123 modified "2023-09-23" @default.
- W2024562123 title "On the Relation Between Expected Returns and Implied Cost of Capital" @default.
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- W2024562123 doi "https://doi.org/10.2139/ssrn.1028882" @default.
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