Estimating the Intertemporal Risk-Return Tradeoff Using the Implied Cost of Capital

• 成果类型: Article
• 署名作者: Pastor, Lubos; Sinha, Meenakshi; Swaminathan, Bhaskaran
• 署名单位: National Bureau of Economic Research; University of Chicago; Cornell University; Cornell University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/j.1540-6261.2008.01415.x
• 发表日期: 2008
• 页码: 2859-2897
• 关键词: STOCK RETURNS; EXPECTED RETURN; Market risk; volatility; forecasts; premium; GROWTH; LEVEL; MODEL; heteroskedasticity

摘要

We argue that the implied cost of capital (ICC), computed using earnings forecasts, is useful in capturing time variation in expected stock returns. First, we show theoretically that ICC is perfectly correlated with the conditional expected stock return under plausible conditions. Second, our simulations show that ICC is helpful in detecting an intertemporal risk-return relation, even when earnings forecasts are poor. Finally, in empirical analysis, we construct the time series of ICC for the G-7 countries. We find a positive relation between the conditional mean and variance of stock returns, at both the country level and the world market level.