ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Measuring Cost of Capital

This paper highlights the complexities associated with the estimation of hurdle rates in emerging market economies and explores whether credit ratings could be used as an alternative to global CAPM for estimating equity cost of capital for valuation of projects in such economies. By adopting the log-linear country credit rating model, this paper estimates the cost of capital for 136 countries, with or without equity markets. India's low stock return correlation with the return on the global index indicates that if the residents are permitted to hold a globally diversified portfolio, they could significantly reduce their exposure to unsystematic risks. Without this the cost of equity capital (which should compensate only for systematic risk) may be higher.

To read the full text Login

Get instant access

New 3 Month Subscription
to Digital Archives at

₹826for India

$50for overseas users

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top