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Ex Ante Cost of Equity Estimates of S&P 500 Firms: The Choice Between Global and Domestic CAPM

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Author Info

  • Robert S. Harris
  • Felicia C. Marston
  • Dev R. Mishra
  • Thomas J. O’Brien

Abstract

We estimate ex ante expected returns for a sample of S&P 500 firms over the period 1983- 1998. The ex ante estimates show a better overall fit with the domestic version of the singlefactor CAPM than with the global version, but the difference is small. This finding has no trend in time and is consistent across groups formed on the basis of relative foreign sales. The findings suggest that for estimating the cost of equity, the choice between the domestic and global CAPM may not be a material issue for many large US firms.

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Bibliographic Info

Article provided by Financial Management Association in its journal Financial Management.

Volume (Year): 32 (2003)
Issue (Month): 3 (Fall)
Pages:

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Handle: RePEc:fma:fmanag:harrisetal03

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Cited by:
  1. Mishra, Dev R. & O'Brien, Thomas J., 2005. "Risk and ex ante cost of equity estimates of emerging market firms," Emerging Markets Review, Elsevier, vol. 6(2), pages 107-120, June.
  2. Jinhan Pae & Tae Choi, 2011. "Corporate Governance, Commitment to Business Ethics, and Firm Valuation: Evidence from the Korean Stock Market," Journal of Business Ethics, Springer, vol. 100(2), pages 323-348, May.
  3. Fernandez, Pablo & Aguirreamalloa, Javier & Liechtenstein, Heinrich, 2009. "The equity premium puzzle: High required equity premium, undervaluation and self fulfilling prophecy," IESE Research Papers D/821, IESE Business School.
  4. Pauline Ahern & Frank Hanley & Richard Michelfelder, 2011. "New approach to estimating the cost of common equity capital for public utilities," Journal of Regulatory Economics, Springer, vol. 40(3), pages 261-278, December.
  5. Fernandez, Pablo, 2008. "The equity premium in 100 textbooks," IESE Research Papers D/757, IESE Business School.
  6. Bruner, Robert F. & Li, Wei & Kritzman, Mark & Myrgren, Simon & Page, Sébastien, 2008. "Market integration in developed and emerging markets: Evidence from the CAPM," Emerging Markets Review, Elsevier, vol. 9(2), pages 89-103, June.

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