Theoretically, the implied cost of capital (ICC) is a good proxy for time-varying expected returns. We find that aggregate ICC strongly predicts future excess market returns at horizons ranging from one month to four years. This predictive power persists even in the presence of popular valuation...

We design an adjusted long-term volatility (ADJ_LV) indicator by removing the interference information of short-term volatility from the simple long-term volatility indicator to investigate the level of predictive ability that ADJ_LV has for stock returns. In a sample spanning 2000 to 2019 and...

We estimate an implied value premium (IVP) using the implied cost of capital methodology. The implied value premium is the difference between the implied costs of capital of value stocks and growth stocks and is a direct estimate of the difference in expected returns between value stocks and...