Evidence on Industry Cost of Equity Estimators

The International Journal of Business and Finance Research, v. 8 (4) p. 1-15, 2014

16 Pages Posted: 12 Dec 2014

See all articles by Omar Gharaibeh

Omar Gharaibeh

Griffith University - Griffith Business School

Graham N. Bornholt

Griffith University

Michael J. Dempsey

Ton Duc Thang University (TDTU)

Date Written: 2014

Abstract

Given that prior research into industry cost of equity indicates that CAPM-derived estimates are no worse than estimates from more complex models, we investigate the bias of the standard CAPM approach for each industry separately, and examine the effectiveness of alternative beta estimators. We find that constant betas produce better estimates of cost of equity for particular industries (mostly either ‘defensive’ or ‘highrisk’ industries). The paper succeeds in offering a meaningful assessment of the empirical reality of the CAPM, as well as offering guidance concerning the appropriate practical application of the CAPM when estimating industry cost of equity.

Keywords: Cost of Equity, Defensive Industries, Constant Beta

JEL Classification: G10, G12, G31, G32

Suggested Citation

Gharaibeh, Omar and Bornholt, Graham N. and Dempsey, Michael J., Evidence on Industry Cost of Equity Estimators (2014). The International Journal of Business and Finance Research, v. 8 (4) p. 1-15, 2014, Available at SSRN: https://ssrn.com/abstract=2455837

Omar Gharaibeh (Contact Author)

Griffith University - Griffith Business School ( email )

Brisbane, Queensland 4111
Australia

Graham N. Bornholt

Griffith University ( email )

Gold Coast Campus
Gold Coast QLD, 4222
Australia

Michael J. Dempsey

Ton Duc Thang University (TDTU) ( email )

District 7
Ho Chi Minh City, 3001
Vietnam

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
103
Abstract Views
673
Rank
469,563
PlumX Metrics