Risk and Ex Ante Cost of Equity Estimates of Emerging Market Firms
23 Pages Posted: 4 Aug 2004 Last revised: 12 Sep 2017
Date Written: July 1, 2004
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: Suggested Citation