Local, Global and International CAPM: For Which Countries Does Model Choice Matter

33 Pages Posted: 22 Aug 2017 Last revised: 17 Apr 2019

See all articles by Demissew Diro Ejara

Demissew Diro Ejara

University of New Haven

Alain A. Krapl

Northern Kentucky University - Department of Economics and Finance

Thomas J. O'Brien

University of Connecticut - Department of Finance

Santiago Ruiz de Vargas

NOERR AG WPG StBG - Advisory Services

Date Written: April 16, 2019

Abstract

For individual stocks of 46 countries, this study investigates empirical differences in local-currency cost of equity estimates between three risk-return models of interest to managers: (1) the traditional (local) CAPM; (2) the global CAPM (GCAPM), where the only risk factor is the global market index; and (3) an international CAPM (ICAPM) with two risk factors, the global market index and a wealth-weighted foreign currency index. The study finds that model choice makes a substantial difference for many, but not all, countries.

Keywords: International CAPM, Global CAPM, Local CAPM, Cost of Equity, Risk Premium, Currency Index, Beta; FX Exposure

JEL Classification: G15

Suggested Citation

Ejara, Demissew Diro and Krapl, Alain A. and O'Brien, Thomas J. and Ruiz de Vargas, Santiago, Local, Global and International CAPM: For Which Countries Does Model Choice Matter (April 16, 2019). University of Connecticut School of Business Research Paper No. 18-04. Available at SSRN: https://ssrn.com/abstract=3023501 or http://dx.doi.org/10.2139/ssrn.3023501

Demissew Diro Ejara

University of New Haven ( email )

300 Boston Post Road
Department of Finance
West Haven, CT 06516
United States
(203) 932-7150 (Phone)

Alain A. Krapl

Northern Kentucky University - Department of Economics and Finance ( email )

Haile/US Bank College of Business
Nunn Drive
Highland Heights, KY 41099
United States

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

Santiago Ruiz de Vargas

NOERR AG WPG StBG - Advisory Services ( email )

Brienner Str. 28
Munich, Bavaria 80333
Germany
+4989286280 (Phone)

HOME PAGE: http://www.noerr.com

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