Predicting Market Returns Using Aggregate Implied Cost of Capital
发布时间：2012-06-01
Topic:
Predicting Market Returns Using Aggregate Implied Cost of Capital
Time:
星期四,2012-06-01 10:30-12:00
Venue:
Room 505, Datong Building West Huaihai Road 211, SAIF
Speaker:
David Ng
Predicting Market Returns Using Aggregate Implied Cost of Capital
Theoretically, the aggregate implied cost of capital (ICC) computed using earnings forecasts is a good proxy for the conditional expected stock return. We empirically examine the ability of the aggregate implied risk premium (IRP), which is ICC minus the one-month T-bill yield, to predict future excess stock market returns. We find that the implied risk premium is a statistically and economically significant predictor of future excess returns, with an adjusted R2 of 6.5% at the 1-year horizon and 31.9% at the 4-year horizon. The predictive power of IRP remains strong even in the presence of several well-known valuation ratios and predictors. The out-of-sample performance of IRP is superior to the risk premium computed from realized excess market returns and other predictors.
发布时间：2012-06-01
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