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A Comparison of Cost of Equity Estimates of Local and Global CAPMs
Author(s) -
Mishra Dev R.,
O'Brien Thomas J.
Publication year - 2001
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2001.tb00028.x
Subject(s) - capital asset pricing model , cost of equity , equity (law) , econometrics , economics , financial economics , basis point , currency , index (typography) , excess return , monetary economics , cost of capital , geography , microeconomics , interest rate , computer science , profit (economics) , context (archaeology) , archaeology , world wide web , political science , law
Cost of equity estimates are compared for three pricing models: the traditional local CAPM, the single (market) factor global CAPM, and the two‐factor global CAPM, with both market and currency index factors. For 2989 US stocks, the average difference in the cost of equity estimates is about 48 basis points between the local CAPM and the single‐factor global CAPM, and is about 61 basis points between the two global models. For 70 developed‐market ADRs, the corresponding average differences are 76 and 47 basis points, respectively. For 48 emerging‐market ADRs, the corresponding average differences are 57 and 70 basis points.