Less is More: Evidence from International Asset Pricing Models

2013 ◽  
Author(s):  
Marie-Claude Beaulieu ◽  
Marie-HHllne Gagnon ◽  
Lynda Khalaf
Keyword(s):  
Asset Pricing ◽  
International Asset Pricing ◽  
Pricing Models ◽  
Less Is More ◽  
Asset Pricing Models

Testing International Asset Pricing Models Using Implied Costs of Capital

2009 ◽  
Vol 44 (2) ◽  
pp. 307-335 ◽  
Author(s):  
Charles Lee ◽  
David Ng ◽  
Bhaskaran Swaminathan
Keyword(s):  
Asset Pricing ◽  
World Market ◽  
Idiosyncratic Volatility ◽  
Expected Returns ◽  
International Asset Pricing ◽  
Pricing Models ◽  
Firm Level ◽  
Economic Relations ◽  
Asset Pricing Models ◽  
Market Beta

AbstractThis paper tests international asset pricing models using firm-level expected returns estimated from an implied cost of capital approach. We show that the implied approach provides clear evidence of economic relations that would otherwise be obscured by the noise in realized returns. Among G-7 countries, expected returns based on implied costs of capital have less than one-tenth the volatility of those based on realized returns. Our tests show that firm-level expected returns increase with world market beta, idiosyncratic volatility, financial leverage, and book-to-market ratios, and decrease with currency beta and firm size.

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