NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Estimating the Intertemporal Risk-Return Tradeoff Using the Implied Cost of Capital

Lubos Pastor, Meenakshi Sinha, Bhaskaran Swaminathan

NBER Working Paper No. 11941
Issued in January 2006
NBER Program(s):   AP

We reexamine the time-series relation between the conditional mean and variance of stock market returns. To proxy for the conditional mean return, we use the implied cost of capital, computed using analyst forecasts. The usefulness of this proxy is shown in simulations. In empirical analysis, we construct the time series of the implied cost of capital for the G-7 countries. We find strong support for a positive intertemporal mean-variance relation at both the country level and the world market level. Some of our evidence is consistent with international integration of the G-7 financial markets.

download in pdf format
   (602 K)

email paper

This paper is available as PDF (602 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11941

Published: Pastor, Lubos, Meenakshi Sinha and Bhaskaran Swaminathan. “Estimating the Intertemporal Risk-Return Tradeoff Using the Implied Cost of Capital.” Journal of Finance 63 (2008): 2859–2897.

Users who downloaded this paper also downloaded these:
Da, Guo, and Jagannathan w14889 CAPM for Estimating the Cost of Equity Capital: Interpreting the Empirical Evidence
Ghysels, Santa-Clara, and Valkanov w10913 There is a Risk-Return Tradeoff After All
Campbell and Viceira w11119 The Term Structure of the Risk-Return Tradeoff
Lambert, Leuz, and Verrecchia w14881 Information Asymmetry, Information Precision, and the Cost of Capital
Pastor and Stambaugh w8462 Liquidity Risk and Expected Stock Returns
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us