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/).

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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  -