Analysis of implied cost of equity capital and the reflection of equity intrinsic values on the market prices

By Tran Vinh Thai (VNP 22)

Supervisor: Dr. Duong Nhu Hung

Abstract:

This thesis focuses on two objectives: analyzing the relationship between the model-based implied cost of equity capital (ICC) and the future realized returns at both individual firm level and whole market level; evaluating the performance of valuation models when the model-based ICC is employed as the appropriate discount rate. The results of testing on S&P500 firms over 1983-2016 reveal that the model-based ICC has a positive and significant effect on the future realized returns at both levels. Moreover, applying the model-based ICC probably increases the valuation models’ performance in terms of accuracy, coefficient, and explanatory power