A Comparison of Cost of Equity Estimates of Local and Global CAPMs
31 Pages Posted: 21 Feb 2001 Last revised: 23 Oct 2017
Date Written: 2001
Cost of equity estimates are compared for three pricing models: the traditional local CAPM, the single (market) factor global CAPM, and the two-factor global CAPM, with both market and currency index factors. For 2989 US stocks, the average difference in the cost of equity estimates is about 48 basis points between the local CAPM and the single-factor global CAPM, and is about 61 basis points between the two global models. For 70 developed-market ADRs, the corresponding average differences are 76 and 47 basis points, respectively. For 48 emerging-market ADRs, the corresponding average differences are 57 and 70 basis points.
Keywords: cost of capital, CAPM, global
JEL Classification: G12, G15, G32
Suggested Citation: Suggested Citation