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THE ARBITRAGE PRICING THEORY AND COST‐OF‐CAPITAL ESTIMATION: THE CASE OF ELECTRIC UTILITIES
Author(s) -
Goldenberg David H.,
Robin Ashok J.
Publication year - 1991
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1991.tb00656.x
Subject(s) - capital asset pricing model , arbitrage pricing theory , investment theory , economics , arbitrage , consumption based capital asset pricing model , econometrics , estimation , asset (computer security) , sample (material) , capital (architecture) , financial economics , cost of capital , set (abstract data type) , microeconomics , computer science , profit (economics) , chemistry , computer security , management , archaeology , chromatography , programming language , history
Capital asset pricing model (CAPM) and alternative arbitrage pricing theory (APT) methodologies are used to estimate the cost of capital for a sample of electric utilities. The statistical factors APT method is found to produce significantly different estimates depending on the number of factors specified and the set of firms factor analyzed. The use of macroeconomic factors is explored, and it is shown that this methodology has advantages over the statistical factors APT and the market model.