A Fast and Parsimonious Way to Estimate the Implied Rate of Return of Equity

Sanna, Dario (2020): A Fast and Parsimonious Way to Estimate the Implied Rate of Return of Equity.

Abstract

I propose a fast and parsimonious way to estimate the implied rate of return of common equity of single stocks and indexes, resulting from the combination of two easily computable ratios.

• Item Type: MPRA Paper
• Language: English
• Keywords: Earnings Yield, Implied Cost of Equity, Price Earnings Ratio, Quadratic Roe Ratio, Roe Discount Model
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G3 - Corporate Finance and Governance > G35 - Payout Policy

References

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Gebhardt, William R. and Lee, Charles M.C. and Swaminathan, Bhaskaran, Toward an Implied Cost of Capital (October 27, 2000). Parker Center for Investment Research Working Paper. Available at SSRN: https://ssrn.com/abstract=254523 or http://dx.doi.org/10.2139/ssrn.254523

Ohlson, James A. Earnings, Book Values, and Dividends in Equity Valuation (1995). Contemporary Accounting Research, 11: 661-687. doi:10.1111/j.1911-3846.1995.tb00461.x