Local, Global, and International CAPM: For Which Countries Does Model Choice Matter?
Journal of Investment Management, Forthcoming
36 Pages Posted: 22 Aug 2017 Last revised: 18 May 2020
Date Written: May 16, 2020
For individual stocks of 46 countries, this study investigates empirical differences in discount rate estimates between three risk-return models of interest to managers who perform discounted cash flow valuation analysis: (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: Discount rate, International CAPM, Global CAPM, Local CAPM, currency risk
JEL Classification: G15
Suggested Citation: Suggested Citation