Estimation risk, information, and the conditional CAPM: Theory and evidence Academic Article

abstract

• We theoretically and empirically investigate the role of information on the cross section of stock returns and firms' cost of capital when investors face estimation risk and learn from noisy signals of uncertain quality. The resultant equilibrium is an information-dependent conditional CAPM. We find strong empirical support for the model. Innovations in market volatility, oil prices, exchange rates, and dispersion of analysts' forecasts not only help explain the cross section of stock returns, but their influence depends on the stock's systematic estimation risk. Moreover, dividend and share repurchase initiations have significant downward announcement effects on estimated betas and their standard errors.

authors

• Sorescu, Sorin

published proceedings

• REVIEW OF FINANCIAL STUDIES

altmetric score

• 3

author list (cited authors)

• Kumar, P., Sorescu, S. M., Boehme, R. D., & Danielsen, B. R.

citation count

• 58

publication date

• May 2008

publisher

• Oxford University Press (OUP)  Publisher

keywords

• 35 Commerce, Management, Tourism And Services
• 3502 Banking, Finance And Investment
• 38 Economics
• 3801 Applied Economics

Digital Object Identifier (DOI)

• 10.1093/rfs/hhn016

start page

• 1037

end page

• 1075

volume

• 21

issue

• 3

URL

• http://dx.doi.org/10.1093/rfs/hhn016