Abstract
Estimates of the cost of equity for industries are imprecise. Standard errors of more than 3.0% per year are typical for both the CAPM and the three-factor model of Fama and French (1993). These large standard errors are the result of(i) uncertainty about true factor risk premiums and (ii) imp ecise estimates of the loadings of industries on the risk factors. Estimates of the cost of equity for firms and projects are surely even less precise.
Author Keywords: Cost of equity; Asset pricing models; Risk loadings
Volume
Vol. 43, Issue 2
Page
153-193
Year
1997
Categories
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Systematic Risk Models
CAPM
Actuarial Applications and Methodologies
Capital Management
Capital Allocation
Actuarial Applications and Methodologies
Valuation
Equity Valuation
Actuarial Applications and Methodologies
Valuation
ROE
Financial and Statistical Methods
Risk Pricing and Risk Evaluation Models
Traditional Risk Load (Profit Margin);
Publications
Journal of Financial Economics
