... that the cost of capital of the firm depends on four factors: the risk free rate, the aggregate risk tolerance of the market, the expected cash flow of the firm, and the covariance of the firm’s ... (the number of investors) and J (the number of firms in the economy), there is a non-zero effect on price and on the cost of capital of reducing the assessment of firm-variance. The firm-specific ... ours, the nature of the cross-sectional impact on the covariance, and therefore the cost of capital, differs in their paper because of the different information structure assumed. When the information...