Inferring the Cost of Capital Using the Ohlson–Juettner Model
 Dan Gode,
 Partha Mohanram
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We compare risk premia (RP) inferred using the OhlsonJuettner (RP_{OJ}) and residual income valuation (RP_{RIV}) models in three ways: (1) correlation with risk factors; (2) correlation with RP estimated by multiplying current realizations of risk factors by coefficients obtained from regressing prioryear RP on prioryear risk factors; and (3) correlation with ex post returns. RP_{OJ} has expected correlations with risk factors, a modest correlation with RP estimated from prioryear regressions, and an economically significant association with ex post returns. RP_{RIV} has generally higher correlations, but regression coefficients are sensitive to whether the industry median ROE is computed with or without loss firms.
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 Title
 Inferring the Cost of Capital Using the Ohlson–Juettner Model
 Journal

Review of Accounting Studies
Volume 8, Issue 4 , pp 399431
 Cover Date
 20031201
 DOI
 10.1023/A:1027378728141
 Print ISSN
 13806653
 Online ISSN
 15737136
 Publisher
 Kluwer Academic Publishers
 Additional Links
 Topics
 Keywords

 implied cost of capital
 exante cost of capital
 risk premium
 equity valuation
 risk
 Industry Sectors
 Authors

 Dan Gode ^{(1)}
 Partha Mohanram ^{(2)}
 Author Affiliations

 1. Stern School of Business, New York University, 40 W 4th St, Suite 427, New York, NY, 10012
 2. Graduate School of Business, Columbia University, 605A Uris Hall, New York, NY, 10027