The cost of equity in Latin America

GRANDES, MARTÍN; PANIGO, DEMIAN TUPAC; PASQUINI, RICARDO

Serie Documentos de Trabajo

CEF-Argentina

Lugar: Buenos Aires; Año: 2005 vol. 12 p. 1 - 90

The aim of this paper is twofold. First, it applies standard Capital Asset Pricing Models (CAPM) to look into cross-section (at the firm and industry levels) and time series differences in the opportunity cost of equity (COE) across seven major Latin American countries. Using an unbalanced panel spanning monthly observations for about 921 publicly traded firms in 1986-2005, it comes up with more than 312,000 COE estimates from 6 different econometric (rolling GMM) specifications. Second, the paper statistically tests the econometric output obtained from those CAPM-type models to and out how well and how much systematic risk (the single determinant of COE in CAPM) accounts for both, cross-section and time series variations in COE