The Implied Cost of Capital : A New Approach

  title={The Implied Cost of Capital : A New Approach},
  author={Kewei Hou and Mathijs A. van Dijk and Yinglei Zhang},
We propose a new approach to estimate the implied cost of capital (ICC). Our approach is distinct from prior studies in that we do not rely on analysts’ earnings forecasts to compute the ICC. Instead, we use a cross-sectional model to forecast the earnings of individual firms. Our approach has two major advantages. First, it allows us to estimate the ICC for a much larger sample of firms over a much longer time period. Second, it is not affected by the various issues that lead to the well… CONTINUE READING
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