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Cost of Capital in Emerging Markets: Bridging Gaps between Theory and Practice

Eduardo Walker ()

Latin American Journal of Economics-formerly Cuadernos de Economía, 2016, vol. 53, issue 1, 111-147

Abstract: An important parameter for asset and project valuation is the opportunity cost of the capital invested, which depends on the systematic risks assumed. Having many angles, the existing literature has not fully resolved the issue for emerging markets. The evidence reviewed in this article suggests that we should at least consider exposure to market risk and country credit risk factors. After reviewing the theoretical and applied literature on cost of capital determination and international asset pricing models, the paper identifies and applies methodologies to determine discount rates applicable to emerging markets for different countries and currencies and develops methodologies for empirically measuring exposure to the country credit risk factor.

Keywords: cost of capital; emerging markets; market risk; credit risk; currency risk (search for similar items in EconPapers)
JEL-codes: G12 G15 G24 G31 G32 (search for similar items in EconPapers)
Date: 2016
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Latin American Journal of Economics-formerly Cuadernos de Economía is currently edited by Raimundo Soto

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Handle: RePEc:ioe:cuadec:v:53:y:2016:i:1:p:111-147