Doctoral thesis

Accounting based valuation and implied discount factor


200 p

Thèse de doctorat: Università della Svizzera italiana, 2012 (jury note: magna cum laude)

English The focus of this doctoral thesis is on the determination of the implied cost of capital in the equity market. Three issues are investigated in detail: the relations between the cost of equity capital, the credit spread and the economic growth; the links between realized market returns and the cost of capital; and the forecasting power of the implied discount factor in predicting market returns. In chapter one, using a cointegration approach, we demonstrated the existence of a long term relation between the implied discount factor and the CDS premium. In chapter two, an alternative estimate for the cost of debt derived from corporate bond spread is investigated. This measure is indeed cointegrated with the implied discount factor and it has some power in predicting future market returns. In chapter three, we demonstrated that the difference in the implied discount factor between countries explains the cross sectional difference in the average realized returns. We further demonstrated that the growth outlook of a country explains the observed difference in the level of the implied discount factor. The time series dynamics are instead mostly explained by changes in the credit spread on US corporate bonds.
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