Calculations of the Implied Cost of Capital (ICC) typically fail on validation criteria. This paper provides an explanation. Though nominally working with accounting-based valuation models, the standard approach fails to recognize accounting principles that govern the accounting. Those...

This paper recasts the consumption asset pricing model in terms of observable accounting outcomes by recognizing accounting principles that connect those outcomes to consumption and the risk to consumption. The model prompts the construction of a pricing factor from observed accounting...

This paper constructs a fundamental pricing factor based on observed accounting information. In contrast to standard models where accounting data often enter via data dredging, the factor is founded on consumption-based asset pricing theory and accounting principles that connect accounting...

This paper estimates the cost of capital from observed accounting information and compares the resulting estimates with so-called implied cost of capital (ICC) calculations and those from asset pricing models. The estimates are based on the idea that buying earnings growth is risky, and...

A two-factor Intertemporal Capital Asset Pricing Model (ICAPM) explains returns to risk associated with fundamentals with zero alpha. In contrast, the model identifies non-zero alphas for returns involving price movements rather than fundamentals, such as price momentum and price drifts....

A two-factor model explains returns for a variety of test portfolios, including those based of CAPM beta and those underlying factors in extant pricing models. The two-factor model involves the market factor and a factor based on firms’ fundamentals that has the feature of providing a hedge in...