Abstract
Estimates of the cost of equity for industries are imprecise. Standard errors of more than 3.0% per year are typical for both a CAPM and a 3-factor model. These large standard errors are the result of uncertainty about true factor risk premiums, and imprecise 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.
Volume
43
Page
153-193
Number
2
Year
1997
Categories
RPP1
Publications
Journal of Financial Economics