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dc.contributor.authorWang, Charles Chang-Yi
dc.date.accessioned2013-05-22T13:17:44Z
dc.date.issued2013-05-22
dc.identifier.citationWang, Charles C.Y. "Measurement Errors of Expected Returns Proxies and the Implied Cost of Capital." Harvard Business School Working Paper, No. 13–098, May 2013.en_US
dc.identifier.urihttp://nrs.harvard.edu/urn-3:HUL.InstRepos:10647827
dc.description.abstractThis paper presents a methodology to study implied cost of capital's (ICC) measurement errors, which are relatively unstudied empirically despite ICCs' popularity as proxies of expected returns. By applying it to the popular implementation of ICCs of Gebhardt, Lee, and Swaminathan (2001) (GLS), I show that the methodology is useful for explaining the variation in GLS measurement errors. I document the first direct empirical evidence that ICC measurement errors can be persistent, can be associated with firms' risk or growth characteristics, and thus confound regression inferences on expected returns. I also show that GLS measurement errors and the spurious correlations they produce are driven not only by analysts' systematic forecast errors but also by functional form assumptions. This finding suggests that correcting for the former alone is unlikely to fully resolve these measurement-error issues. To make robust inferences on expected returns, ICC regressions should be complemented by realized-returns regressions.en_US
dc.language.isoen_USen_US
dash.licenseOAP
dc.subjectExpected returnsen_US
dc.subjectimplied cost of capitalen_US
dc.subjectmeasurement errorsen_US
dc.titleMeasurement Errors of Expected Returns Proxies and the Implied Cost of Capitalen_US
dc.typeResearch Paper or Reporten_US
dc.description.versionAuthor's Originalen_US
dc.relation.journalHarvard Business School working paper # 13-098en_US
dash.depositing.authorWang, Charles Chang-Yi
dc.date.available2013-05-22T13:17:44Z
dash.contributor.affiliatedWang, Changyi


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