Abstract

http://ssrn.com/abstract=145928
 
 

Citations (273)



 
 

Footnotes (18)



 


 



Toward An Ex Ante Cost-of-Capital


William R. Gebhardt


affiliation not provided to SSRN

Charles M.C. Lee


Stanford University - Graduate School of Business

Bhaskaran Swaminathan


LSV Asset Management

January 8, 1999


Abstract:     
We use a discounted residual-income valuation model to compute an ex-ante cost-of-capital for a large sample of U.S. stocks that are covered by I/B/E/S analysts. We show that the ex ante cost-of-capital computed in this manner is correlated with a firm's degree of leverage, market liquidity, information environment, and earnings variability. Specifically, the market demands a higher risk premia for stocks with high book leverage and market leverage, low dollar trading volume or market capitalization, low analyst coverage, and more volatile (less predictable) earnings. The market also demands a higher risk premia for stocks with high book-to-market ratios and low price momentum. Traditional market risk proxies such as beta and return volatility are not significantly correlated with the ex ante cost-of-capital.

Number of Pages in PDF File: 47

JEL Classification: G12, G31, M41

working papers series


Download This Paper

Date posted: January 25, 1999  

Suggested Citation

Gebhardt, William R. and Lee, Charles M.C. and Swaminathan, Bhaskaran, Toward An Ex Ante Cost-of-Capital (January 8, 1999). Available at SSRN: http://ssrn.com/abstract=145928 or http://dx.doi.org/10.2139/ssrn.145928

Contact Information

William R. Gebhardt
affiliation not provided to SSRN
Charles M.C. Lee (Contact Author)
Stanford University - Graduate School of Business ( email )
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

Bhaskaran Swaminathan
LSV Asset Management ( email )
155 North Wacker Drive
Chicago, IL 60606
United States
Feedback to SSRN


Paper statistics
Abstract Views: 6,644
Downloads: 2,402
Download Rank: 2,567
Citations:  273
Footnotes:  18
People who downloaded this paper also downloaded:
1. Toward an Implied Cost of Capital
By William Gebhardt, Charles Lee, ...

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.328 seconds