This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Costs of Equity Capital and Model Mispricing

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Lubos Pastor
Robert F. Stambaugh

Additional information is available for the following registered author(s):

Abstract

Costs of equity for individual firms are estimated in a Bayesian framework using several factor-based pricing models. Substantial prior uncertainty about mispricing often produces an estimated cost of equity close to that obtained with mispricing precluded, even for a stock whose average return departs significantly from the pricing model's prediction. Uncertainty about which pricing model to use is less important, on average, than within-model parameter uncertainty. In the absence of mispricing uncertainty, uncertainty about factor premiums is generally the largest source of overall uncertainty about a firm's cost of equity, although uncertainty about betas is nearly as important.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w6490.pdf
File Format: application/pdf
File Function:
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6490.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: Apr 1998
Date of revision:
Publication status: published as Journal of Finance, Vol. 54 (1999): 67-121.
Handle: RePEc:nbr:nberwo:6490

Note: AP
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Daniel, Kent & Titman, Sheridan, 1997. " Evidence on the Characteristics of Cross Sectional Variation in Stock Returns," Journal of Finance, American Finance Association, vol. 52(1), pages 1-33, March. [Downloadable!] (restricted)
    Other versions:
  2. Vasicek, Oldrich A, 1973. "A Note on Using Cross-Sectional Information in Bayesian Estimation of Security Betas," Journal of Finance, American Finance Association, vol. 28(5), pages 1233-39, December. [Downloadable!] (restricted)
  3. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September. [Downloadable!] (restricted)
  4. Shanken, Jay, 1990. "Intertemporal asset pricing : An Empirical Investigation," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 99-120. [Downloadable!] (restricted)
  5. Stambaugh, Robert F., 1997. "Analyzing investments whose histories differ in length," Journal of Financial Economics, Elsevier, vol. 45(3), pages 285-331, September. [Downloadable!] (restricted)
    Other versions:
  6. Kandel, Shmuel & McCulloch, Robert & Stambaugh, Robert F, 1995. "Bayesian Inference and Portfolio Efficiency," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 8(1), pages 1-53. [Downloadable!] (restricted)
    Other versions:
  7. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-52, September. [Downloadable!] (restricted)
  8. Gregory Connor and Robert A. Korajczyk., 1987. "Estimating Pervasive Economic Factors with Missing Observations," Research Program in Finance Working Papers 173, University of California at Berkeley.
  9. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February. [Downloadable!] (restricted)
  10. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December. [Downloadable!] (restricted)
  11. repec:cup:etheor:v:12:y:1996:i:3:p:409-31 is not listed on IDEAS
  12. Connor, Gregory & Korajczyk, Robert A., 1986. "Performance measurement with the arbitrage pricing theory : A new framework for analysis," Journal of Financial Economics, Elsevier, vol. 15(3), pages 373-394, March. [Downloadable!] (restricted)
  13. Huberman, Gur & Kandel, Shmuel & Stambaugh, Robert F, 1987. " Mimicking Portfolios and Exact Arbitrage Pricing," Journal of Finance, American Finance Association, vol. 42(1), pages 1-9, March. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luboš Pástor & Robert F. Stambaugh, . "Investing in Equity Mutual Funds," CRSP working papers 532, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
    Other versions:
  2. Pástor, Lubos & Stambaugh, Robert F, 2007. "Predictive Systems: Living with Imperfect Predictors," CEPR Discussion Papers 6076, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. A. Craig MacKinlay & Lubos Pastor, 1999. "Asset Pricing Models: Implications for Expected Returns and Portfolio Selection," NBER Working Papers 7162, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Samuel Mongrut Montalván & Didac Ramírez Sarrió, 2005. "Discount Rates in Emerging Capital Markets," Finance 0501013, EconWPA. [Downloadable!]
  5. Lubos Pastor & Robert F. Stambaugh, 2000. "Evaluating and Investing in Equity Mutual Funds," NBER Working Papers 7779, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Klaas Baks & Andrew Metrick & Jessica Wachter, . "Should Investors Avoid All Actively Managed Mutual Funds? A Study in Bayesian Performance Evaluation," Rodney L. White Center for Financial Research Working Papers 18-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
  7. Edward J. Green & Jose A. Lopez & Zhenyu Wang, 2001. "The Federal Reserve banks' imputed cost of equity capital," Working Papers in Applied Economic Theory 2001-01, Federal Reserve Bank of San Francisco. [Downloadable!]
  8. Klaas Baks & Andrew Metrick & Jessica Wachter, 1999. "Bayesian Performance Evaluation," NBER Working Papers 7069, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Francois-Éric Racicot & Raymond Théoret & Alain Coen, 2006. "Towards New Empirical Versions of Financial and Accounting Models Corrected for Measurement Errors," RePAd Working Paper Series UQO-DSA-wp132006, Département des sciences administratives, UQO. [Downloadable!]
  10. Edward J. Green & Jose A. Lopez & Zhenyu Wang, 2003. "Formulating the imputed cost of equity capital for priced services at Federal Reserve banks," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 55-81. [Downloadable!]
  11. Lubos Pastor & Robert F. Stambaugh, 2000. "The Equity Premium and Structural Breaks," NBER Working Papers 7778, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Statistics
Access and download statistics

Did you know? RePEc data is maintained by each archive holder on its own website. Nothing is held centrally.

This page was last updated on 2008-8-19.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.