Ex Ante Cost of Equity Estimates of S&P 500 Firms: The Choice between Global and Domestic CAPM

Darden Business School Working Paper No. 02-09

Posted: 10 Jan 2005

See all articles by Robert S. Harris

Robert S. Harris

University of Virginia - Darden School of Business

Felicia C. Marston

University of Virginia - McIntire School of Commerce

Dev R. Mishra

University of Saskatchewan - Edwards School of Business

Thomas J. O'Brien

University of Connecticut - Department of Finance

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Abstract

We estimate ex ante expected returns for a sample of S&P 500 firms over the period 1983-98. The exante estimates show a better overall fit with the domestic version of the single-factor CAPM than with the global version, but the difference is small. This finding has no trend in time and is consistent across groups formed on the basis of relative foreign sales. The findings suggest that, for estimating the cost of equity, the choice between the domestic and global CAPMs may not be a material issue for many large U.S. firms.

Suggested Citation

Harris, Robert S. and Marston, Felicia C. and Mishra, Dev R. and O'Brien, Thomas J., Ex Ante Cost of Equity Estimates of S&P 500 Firms: The Choice between Global and Domestic CAPM. Darden Business School Working Paper No. 02-09, Available at SSRN: https://ssrn.com/abstract=453282

Robert S. Harris

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4823 (Phone)
434-924-4859 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/harris.htm

Felicia C. Marston

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
804-924-1417 (Phone)

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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