Validity Test of Implicit Capital Cost Valuation Model—Based on China’s A-Share Market
- DOI
- 10.2991/assehr.k.200207.029How to use a DOI?
- Keywords
- earnings forecast, capital cost of equity, validity test
- Abstract
Equity capital cost plays an important role in investment strategies and asset valuation, but there is no recognized valuation model and unified model validity test method in academia so far. This paper measures the cost of equity capital of A-share listed companies in China by using five kinds of implicit capital cost valuation models widely used by domestic scholars, and tests the validity of the model from the economic and statistical perspectives. It is found that the estimated values of the five models are significantly positively correlated with the realized returns one to three years in advance. Statistical tests show that OJ, PEG and MPEG models are more effective in explaining the time series of expected returns, while OJ models are more effective in explaining the cross-sectional changes of expected returns. Therefore, OJ model can be used as an effective model to measure the cost of equity capital of A-share listed companies in China.
- Copyright
- © 2020, the Authors. Published by Atlantis Press.
- Open Access
- This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).
Cite this article
TY - CONF AU - Hong Luo AU - Zhiguang Guo PY - 2020 DA - 2020/02/17 TI - Validity Test of Implicit Capital Cost Valuation Model—Based on China’s A-Share Market BT - Proceedings of the International Academic Conference on Frontiers in Social Sciences and Management Innovation (IAFSM 2019) PB - Atlantis Press SP - 175 EP - 182 SN - 2352-5398 UR - https://doi.org/10.2991/assehr.k.200207.029 DO - 10.2991/assehr.k.200207.029 ID - Luo2020 ER -