A Comparison of Cost of Equity Estimates of Local and Global CAPMs

31 Pages Posted: 21 Feb 2001 Last revised: 23 Oct 2017

See all articles by Dev R. Mishra

Dev R. Mishra

University of Saskatchewan - Edwards School of Business

Thomas J. O'Brien

University of Connecticut - Department of Finance

Date Written: 2001

Abstract

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

Mishra, Dev R. and O'Brien, Thomas J., A Comparison of Cost of Equity Estimates of Local and Global CAPMs (2001). The Financial Review, November 2001. Available at SSRN: https://ssrn.com/abstract=261052 or http://dx.doi.org/10.2139/ssrn.261052

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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