The role of market efficiency on implied cost of capital estimates: an international perspective

David Schröder

Annals of Finance, 2020, vol. 16, issue 4, No 1, 463-499

Abstract: Abstract This study examines the role of market efficiency on international differences in the usefulness of the implied cost of capital (ICC) to measure expected stock returns. The analysis exploits cross-country differences in market efficiency around the world using a variety of empirical measures of market efficiency. A key methodological contribution of this paper is to assess the quality of the ICC as estimate of expected returns by evaluating its forecast error for subsequent stock returns. The results show that the accuracy of the ICC as measure of expected stock returns is positively associated with the countries’ level of market efficiency.

Keywords: Implied cost of capital; Expected stock returns; Market efficiency; Analyst forecasts; Mispricing; Cross-country study (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 G18 K00 M41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10436-020-00374-0 Abstract (text/html)
Access to full text is restricted to subscribers.

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:kap:annfin:v:16:y:2020:i:4:d:10.1007_s10436-020-00374-0

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/10436/PS2

DOI: 10.1007/s10436-020-00374-0

Access Statistics for this article

Annals of Finance is currently edited by Anne Villamil

More articles in Annals of Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().