Perspectives: Global Risk Factors and the Cost of Capital

Posted: 5 May 2004

See all articles by Kees C. G. Koedijk

Kees C. G. Koedijk

Tilburg University - Department of Finance

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management; Erasmus Research Institute of Management (ERIM)

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Abstract

Analysis of 3,300 stocks from nine industrialized countries over the 1980-99 period indicates that whether the capital asset pricing model or some form of international CAPM is used makes little difference in the cost-of-capital estimate for most companies in most countries. The international CAPM yielded an estimate of the cost of equity capital that was significantly different from that of the domestic CAPM in only 4-5 percent of the sample companies. For the vast majority of companies, the domestic market factor is an adequate benchmark against which to measure an individual company's exposure to both global market and currency risk factors.

Keywords: Equity Investments, fundamental analysis and valuation models, Corporate Finance, capital investment decisions

JEL Classification: G12, G15, G31

Suggested Citation

Koedijk, Kees G. and Van Dijk, Mathijs A., Perspectives: Global Risk Factors and the Cost of Capital. Financial Analysts Journal, Vol. 60, No. 2, pp. 32-38, March/April 2004. Available at SSRN: https://ssrn.com/abstract=540182

Kees G. Koedijk (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

Mathijs A. Van Dijk

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands
+31 10 408 1124 (Phone)
+31 10 408 9017 (Fax)

HOME PAGE: http://mathijsavandijk.com/

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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