The Predictive Performance of Asset Pricing Models: Evidence from the Australian Securities Exchange

Robert Bianchi, Michael Drew and Timothy Whittaker ()
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Timothy Whittaker: EDHEC Infrastructure Institute, Singapore

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2016, vol. 19, issue 04, 1-18

Abstract: This paper considers the accuracy (or otherwise) of cost of equity estimates provided by a range of Australian asset pricing models on industry returns. The results suggest that a simple, constant-benchmark approach (fixed excess return of five percent per annum) provides the best forecast for the cost of equity capital for the various industry segments of the Australian Securities Exchange examined across the observation window. Our results from Australia corroborate U.S. findings regarding the disconnect between asset pricing models that provide the best ex-post explanation of asset returns and models that produce superior ex-ante predictions of the cost of capital.

Keywords: Out-of-sample; prediction; asset pricing; Australia (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1142/S0219091516500235

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