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Investing for Productivity and Prosperity (1994) / Chapter Skim
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Source of the Cost of Equity Disparity
Pages 28-28

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From page 28...
... A decline in the required return on equities~ for example' could boost stock prices and coincide with very high returns on stocks. Although recognizing the foregoing difficulties with measuring the cost of equity, Hatsopoulos and Poterba argue that if investors in Japanese equities extrapolate recent rates of return on corporate assets into the future to assess the prospects for capital gains, then the return they expect to earn is lower than that expected by U.S.
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Key Terms

  • capital gains
  • observed returns
  • corporate assets
  • sizable difference
  • land prices

  • return measurement
  • extrapolate recent
  • foregoing difficulties
  • infer required
  • materially affect

  • factors appear
  • principal competition
  • japanese equities
  • required return
  • board believes

  • poterba argue
  • industrial nations
  • equity finance
  • stock prices
  • tax law

  • expected returns
  • persistent disparity
  • boost stock
  • equities extrapolate
  • dizzying increase

  • authors discuss
  • stock returns
  • measured reliably
  • expected capital
  • equity investment


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