Evaluating Firm-Level Expected-Return Proxies: Implications for Estimating Treatment Effects

• 成果类型: Article
• 署名作者: Lee, Charles M. C.; So, Eric C.; Wang, Charles C. Y.
• 署名单位: Stanford University; Massachusetts Institute of Technology (MIT); Harvard University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa066
• 发表日期: 2021
• 页码: 1907
• 关键词: cross-section; IMPLIED COST; Market equilibrium; equity; expectations; RISK; disclosure; INFORMATION; INVESTMENT; volatility

摘要

We introduce a parsimonious framework for choosing among alternative expected-return proxies (ERPs) when estimating treatment effects. By comparing ERPs' measurement error variances in the cross-section and in the time series, we provide new evidence on the relative performance of firm-level ERPs nominated by recent studies. Generally, implied-costs-of-capital metrics perform best in the time series, whereas characteristic-based proxies perform best in the cross-section. Factor-based ERPs, even the latest renditions, perform poorly. We revisit four prior studies that use ex ante ERPs and illustrate how this framework can potentially alter either the sign or the magnitude of prior inferences.