Empirical Estimation of the Cost of Equity: An Application to Selected Brazilian Utilities Companies

Marcelo Bianconi and Joe Yoshino

Review of Economics & Finance, 2015, vol. 5, 1-21

Abstract: We provide an extensive set of alternative models for the estimation of the real cost of equity in a sample of utilities firms in Brazil with monthly data from March 2006 to June 2011. The traditional CAPM is rejected, together with the Fama-French factors, due to a poor fit. Additional factors improve the fit of the models and the estimated betas and real cost of equity increase relative to the traditional CAPM and Fama-French models. Accounting for conditional heteroskedasticity shows that autocorrelation of variances is more important than news effects. The inclusion of higher order terms shows that the third order term is mostly significant and positive indicating preference for skewness in this sample period. Our estimates of betas and the implied predicted real cost of equity show that, across the best models, betas are significantly below unity in the range 0.26-0.73. The predicted real cost of equity, across the best models, for Brazil in this sector and sample period is in the range of 8.7% to 13.2% per year.

Keywords: Asset pricing; Multifactor model; CAPM; Emerging markets (search for similar items in EconPapers)
JEL-codes: G12 G31 O54 (search for similar items in EconPapers)
Date: 2015
Note: The authors thank the Department of Economics at FEA-USP, FIPE, Fapesp and the Department of Economics at Tufts University for financial support.
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.bapress.ca/ref/ref-article/1923-7529-2015-01-01-21.pdf (application/pdf)

Related works:
Working Paper: Empirical Estimation of the Cost of Equity: An Application to Selected Brazilian Utilities Companies (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bap:journl:150101

Ordering information: This journal article can be ordered from
17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada

Access Statistics for this article

Review of Economics & Finance is currently edited by H. Carlson

More articles in Review of Economics & Finance from Better Advances Press, Canada 17 Alton Towers Circle, Unit 101 Toronto, ON, M1V3L8, Canada.
Bibliographic data for series maintained by Carlson ( this e-mail address is bad, please contact ).