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The cost of equity in emerging markets: The case of Latin America

Author

Listed:
  • González, Maximiliano

    (School of Management, Universidad de los Andes)

  • Garay, Urbi

    (IESA)

  • Rosso, John

    (School of Management, Universidad de Los Andes)

Abstract

We applied ten methods to calculate the cost of equity in a set of companies included in the MSCI emerging markets list from five countries in Latin America. The methods modify the discount rate obtained using the standard Capital Asset Pricing Model (CAPM) by adjusting for country risk premiums. We found that country effects are more important than industry effects in Latin America. This work also contributes to a better understanding of how different ways of calculating country risk can affect a firm’s cost of equity. Furthermore, it gives empirical evidence for specific country and industry determinants of the cost of equity that are not explicitly treated in the extant literature

Suggested Citation

  • González, Maximiliano & Garay, Urbi & Rosso, John, 2014. "The cost of equity in emerging markets: The case of Latin America," Galeras. Working Papers Series 038, Universidad de Los Andes. Facultad de Administración. School of Management.
    • Handle: RePEc:uac:somwps:038
    as

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    References listed on IDEAS

    as
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    5. Donald R. Lessard, 1996. "Incorporating Country Risk In The Valuation Of Offshore Projects," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 52-63, September.
    6. González, Maximiliano & Guzmán, Alexander & Pombo, Carlos & Trujillo, María Andréa, 2012. "Family involvement and dividend policy in listed and non-listed firms," Galeras. Working Papers Series 034, Universidad de Los Andes. Facultad de Administración. School of Management.
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    10. Bekaert, Geert & Harvey, Campbell R., 2002. "Research in emerging markets finance: looking to the future," Emerging Markets Review, Elsevier, vol. 3(4), pages 429-448, December.
    11. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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