Risk and Ex Ante Cost of Equity Estimates of Emerging Market Firms

23 Pages Posted: 4 Aug 2004 Last revised: 12 Sep 2017

See all articles by Dev R. Mishra

Dev R. Mishra

University of Saskatchewan - Edwards School of Business

Thomas J. O'Brien

University of Connecticut - Department of Finance

Date Written: July 1, 2004

Abstract

We examine the empirical relationship between estimates of ex ante cost of equity and risk for a sample of individual emerging market equities for the period 1990-2000. The ex ante cost of equity estimates are obtained using the residual income valuation model. As in studies that use mean realized returns on emerging market indexes, a measure of total risk (return volatility) is the most significant risk factor in explaining ex ante expected return estimates. For emerging market equities with substantial investability to global investors, global beta adds some explanatory power.

Keywords: Emerging markets, cost of equity, political risk

JEL Classification: G31, G13

Suggested Citation

Mishra, Dev R. and O'Brien, Thomas J., Risk and Ex Ante Cost of Equity Estimates of Emerging Market Firms (July 1, 2004). Emerging Markets Review, Vol. 6, No. 2, 2005, Available at SSRN: https://ssrn.com/abstract=570721 or http://dx.doi.org/10.2139/ssrn.570721

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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