Purpose – Estimates of systematic risk or beta are an important determinant of the cost of capital. The standard technique used to compile beta estimates is an ordinary least squares regression of stock returns on market returns using four to five years of monthly data. This convention assumes...

We find that a composite implied cost of capital (ICC) estimate - based on the earnings forecasts generated by cross-sectional models is highly correlated with future realised returns in both portfolio- and regression-based tests. By contrast, we find very little evidence for an association with...