Implied cost of capital investment strategies: evidence from international stock markets

Esterer, Florian; Schröder, David

doi:10.1007/s10436-013-0236-3

Cited by 8 publications

(3 citation statements)

References 57 publications

(55 reference statements)

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“…The ICC can be defined as the internal rate of return that equates share prices to discounted analysts’ cash flow forecasts. Although several assumptions have to be applied when using this method, it is more popular for country‐level analysis (Esterer & Schröder, ).…”

Section: Empirical Strategymentioning

confidence: 99%

Regulatory quality, financial integration and equity cost of capital

Nagaraj

Zhang

2019

Rev International Economics

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We study the impact of international financial integration on firm‐level equity cost of capital in the presence of regulatory differences. International financial integration reduces the domestic cost of capital in the presence of well‐defined regulations that make it easier for foreign firms to overcome information asymmetry. We study this relationship for 55 countries for the period 2002 to 2014. Using multilevel mixed estimations, we find a negative relationship between cost of capital and both financial openness and regulatory quality. However, economies with better regulatory quality have a positive relationship between financial openness and cost of capital. Our results inform policy on the cost of higher level of regulations on firms’ equity cost of capital, especially when an economy has a high level of financial openness.

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Section: Empirical Strategymentioning

confidence: 99%

Regulatory quality, financial integration and equity cost of capital

Nagaraj

Zhang

2019

Rev International Economics

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“…Despite the value relevance of analysts’ forecasts, prior research has also shown that stock price reactions to earnings announcements are stronger than the response to analysts’ forecast revisions (Bartov et al , 2002; Esterer and Schröder, 2014). Consistent with the notion that earnings figures are important to investors (Ammer and Ahmad-Zaluki, 2017; Hlel et al , 2019), recent research shows that firms actively manage their earnings (or analysts’ expectations) to MBE forecast consensus (Bartov et al , 2002; Kim and Song, 2015; Masumoto, 2002; Zhang et al , 2018).…”

Section: Introductionmentioning

confidence: 98%

Analysts’ forecasts between last consensus and earning announcement date

Zhang

Gay

2020

JFRA

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Purpose Thomson financial database reports a monthly consensus measure of analysts’ forecasts in the third week of every month, and firms’ earnings announcement dates are usually different from the last consensus calculation date. Thus, there is a gap between the last consensus calculation date and the earnings announcement date of firms. This study aims to address the question: “Do analysts issue forecasts that are slightly higher than the consensus number to increase the accuracy of their forecasts?” Design/methodology/approach This study is based on a sample of 91,172 quarterly earnings forecasts of various firms from 1990 to 2007 made between the last consensus calculation date and quarterly earnings announcement date. Descriptive statistics and statistical tests were used to analyze the data. Findings The findings propose that contrary to expectation, analysts’ forecasts between the last consensus calculation date and earnings announcement date are smaller than the consensus number. Also, the forecasts made between the last consensus and earnings announcement date is not as informative as forecasts made at other times as they could merely reflect the analysts’ herding behavior resulting from their career concerns. Originality/value This study provides a link between the literature that studies firms’ meet or beat analysts’ earnings phenomenon and analysts’ forecast decision-making context. This study also provides useful implications for the literature on the information content of analysts’ forecasts.

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“…Lee et al (2009) employs the ICC to test asset pricing models, while Pástor et al (2008) and Chava and Purnanandam (2010) analyze the risk-return trade-off of shares. Li et al (2013) and Esterer and Schröder (2014) use the ICC to predict stock returns.…”

Section: Introductionmentioning

confidence: 99%

The role of market efficiency on implied cost of capital estimates: an international perspective

Schröder

2020

Ann Finance

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This study examines the role of market efficiency on international differences in the usefulness of the implied cost of capital (ICC) to measure expected stock returns. The analysis exploits cross-country differences in market efficiency around the world using a variety of empirical measures of market efficiency. A key methodological contribution of this paper is to assess the quality of the ICC as estimate of expected returns by evaluating its forecast error for subsequent stock returns. The results show that the accuracy of the ICC as measure of expected stock returns is positively associated with the countries' level of market efficiency.

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Implied cost of capital investment strategies: evidence from international stock markets

Cited by 8 publications

References 57 publications

Regulatory quality, financial integration and equity cost of capital

Regulatory quality, financial integration and equity cost of capital

Analysts’ forecasts between last consensus and earning announcement date

The role of market efficiency on implied cost of capital estimates: an international perspective

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