TY - JOUR
T1 - Using forecasts of earnings to simultaneously estimate growth and the rate of return on equity investment
AU - Easton, Peter
AU - Taylor, Gary
AU - Shroff, Pervin
AU - Sougiannis, Theodore
PY - 2002/6
Y1 - 2002/6
N2 - We develop a method for simultaneously estimating the cost of equity capital and the growth in residual earnings that are implied by current stock prices, current book value of equity, and short-term forecasts of accounting earnings. We demonstrate the use of our method by calculating the expected equity risk premium. Our estimate is higher than estimates in extant studies that are based on the same earnings forecast data. The main difference between our study and these papers is that while they provide arguments supporting an assumed rate of growth beyond the forecast horizon, we estimate this rate.
AB - We develop a method for simultaneously estimating the cost of equity capital and the growth in residual earnings that are implied by current stock prices, current book value of equity, and short-term forecasts of accounting earnings. We demonstrate the use of our method by calculating the expected equity risk premium. Our estimate is higher than estimates in extant studies that are based on the same earnings forecast data. The main difference between our study and these papers is that while they provide arguments supporting an assumed rate of growth beyond the forecast horizon, we estimate this rate.
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U2 - 10.1111/1475-679X.00066
DO - 10.1111/1475-679X.00066
M3 - Article
AN - SCOPUS:0036628332
SN - 0021-8456
VL - 40
SP - 657
EP - 676
JO - Journal of Accounting Research
JF - Journal of Accounting Research
IS - 3
ER -