EconPapers    
Economics at your fingertips  
 

Fama-French, CAPM, and implied cost of equity

Dev R. Mishra and O’Brien, Thomas J.

Journal of Economics and Business, 2019, vol. 101, issue C, 73-85

Abstract: This study uses U.S. implied cost of equity observations to compare the CAPM with both ex ante and ex post versions of the Fama-French three-factor model. The ex ante version is a simple theoretical model that requires mutual consistency among the factor risk premium estimates, given the market’s level of risk aversion. In contrast, an ex post version is “unrestricted”, because the factor risk premium estimates are based on historical returns. The ex ante version explains the implied cost of equity observations better than the CAPM and two popular ex post versions.

Keywords: CAPM; Fama-French three-factor model; Implied cost of equity; Size factor; Value factor; Ex ante; Geometric mean (search for similar items in EconPapers)
JEL-codes: G1 G3 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148619517302990
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:101:y:2019:i:c:p:73-85

Access Statistics for this article

Journal of Economics and Business is currently edited by Kenneth J. Kopecky

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-05-11
Handle: RePEc:eee:jebusi:v:101:y:2019:i:c:p:73-85