International Cost of Capital Estimation: The No-Arbitrage Method

25 Pages Posted: 22 May 2018

See all articles by Malcolm McLelland

Malcolm McLelland

McLelland + Palazzi | Financial economics

Date Written: May 8, 2018


This study summarizes problems associated with existing international cost of capital (ICC) estimation methods; adapts long-existing arbitrage pricing methods to ICC estimation to a setting where ICC is to be estimated for a privately-held asset not traded in the capital markets; and then presents a semi-realistic example of ICC estimation for such non-traded assets under the NA method. The study contributes to the literature by more clearly defining the ICC estimation problem; provides a heretofore absent clear theoretical basis for ICC estimation; explains critical aspects of developing accurate, reliable ICC estimates; and provides a general solution to the identified problems with existing ICC estimation methods.

Keywords: No-arbitrage asset pricing, cost of capital, discount rates, valuation, international

JEL Classification: G11, G12, G32

Suggested Citation

McLelland, Malcolm, International Cost of Capital Estimation: The No-Arbitrage Method (May 8, 2018). Available at SSRN: or

Malcolm McLelland (Contact Author)

McLelland + Palazzi | Financial economics ( email )

Rua Padre Carvalho 408
Sao Paulo, Sao Paulo 05427-020


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