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

Lubos Pastor, Meenakshi Sinha and Bhaskaran Swaminathan

No 11941, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We reexamine the time-series relation between the conditional mean and variance of stock market returns. To proxy for the conditional mean return, we use the implied cost of capital, computed using analyst forecasts. The usefulness of this proxy is shown in simulations. In empirical analysis, we construct the time series of the implied cost of capital for the G-7 countries. We find strong support for a positive intertemporal mean-variance relation at both the country level and the world market level. Some of our evidence is consistent with international integration of the G-7 financial markets.

JEL-codes: G1 (search for similar items in EconPapers)
Date: 2006-01
New Economics Papers: this item is included in nep-fin
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Pastor, Lubos, Meenakshi Sinha and Bhaskaran Swaminathan. “Estimating the Intertemporal Risk-Return Tradeoff Using the Implied Cost of Capital.” Journal of Finance 63 (2008): 2859–2897.

Downloads: (external link)
http://www.nber.org/papers/w11941.pdf (application/pdf)

Related works:
Journal Article: Estimating the Intertemporal Risk–Return Tradeoff Using the Implied Cost of Capital (2008)
Working Paper: Estimating the Intertemporal Risk-Return Tradeoff Using the Implied Cost of Capital (2006)
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:nbr:nberwo:11941

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w11941

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().