Foreign Exchange Exposure and Cost of Equity for US Companies: Local Versus Global CAPM

Journal of Applied Finance, No. 1, 2011

24 Pages Posted: 15 Nov 2009 Last revised: 17 Apr 2018

See all articles by Walter Dolde

Walter Dolde

University of Connecticut - Department of Finance

Carmelo Giaccotto

University of Connecticut - Department of Finance

Dev R. Mishra

University of Saskatchewan - Edwards School of Business

Thomas J. O'Brien

University of Connecticut - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: April 5, 2010

Abstract

For U.S. firms with extreme foreign exchange (FX) exposure levels, we ask whether the single-factor global CAPM yields significantly different cost of equity estimates from the local CAPM. For a sample of U.S. firms from 2000-2007, we find a clear and statistically significant relation between the differences of the two models’ cost of equity estimates and the firms’ FX exposure estimates. However, the economic significance is questionable, even for firms with extreme FX exposure levels.

Keywords: Global CAPM, Local CAPM, Cost of Equity, Foreign Exchange, Exposure

JEL Classification: F3, G1, G3

Suggested Citation

Dolde, Walter and Giaccotto, Carmelo and Mishra, Dev R. and O'Brien, Thomas J., Foreign Exchange Exposure and Cost of Equity for US Companies: Local Versus Global CAPM (April 5, 2010). Journal of Applied Finance, No. 1, 2011. Available at SSRN: https://ssrn.com/abstract=1505975 or http://dx.doi.org/10.2139/ssrn.1505975

Walter Dolde

University of Connecticut - Department of Finance ( email )

School of Business
One Univesity Place
Stamford, CT 06901-2315
United States
203-301-0806 (Phone)

Carmelo Giaccotto

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
202-486-4360 (Phone)
202-486-0349 (Fax)

Dev R. Mishra

University of Saskatchewan - Edwards School of Business ( email )

Edwards School of Business
Saskatoon, Saskatchewan S7N 5A7
Canada
306-966-8457 (Phone)
306-966-2515 (Fax)

Thomas J. O'Brien (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3041 (Phone)
860-486-0634 (Fax)

HOME PAGE: http://www.business.uconn.edu/staff.asp?id=57

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