The Arbitrage Pricing Theory and Cost-of-Capital Estimation: The Case of Electric Utilities
AbstractCapital 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.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 14 (1991)
Issue (Month): 3 (Fall)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0270-2592
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- Edward J. Green & Jose A. Lopez & Zhenyu Wang, 2001. "The Federal Reserve banks' imputed cost of equity capital," Working Paper Series 2001-01, Federal Reserve Bank of San Francisco.
- Gur Huberman & Zhenyu Wang, 2005. "Arbitrage pricing theory," Staff Reports 216, Federal Reserve Bank of New York.
- Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
- repec:fip:fedfap:2001-01 is not listed on IDEAS
- Edward J. Green & Jose A. Lopez & Zhenyu Wang, 2003. "Formulating the imputed cost of equity capital for priced services at Federal Reserve banks," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 55-81.
- He, Ling T., 2005. "Instability and predictability of factor betas of industrial stocks: The Flexible Least Squares solutions," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(4-5), pages 619-640, September.
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