CAPM for estimating the cost of equity capital: Interpreting the empirical evidence

• 成果类型: Article
• 署名作者: Da, Zhi; Guo, Re-Jin; Jagannathan, Ravi
• 署名单位: Northwestern University; University of Notre Dame; University of Illinois System; University of Illinois Chicago; University of Illinois Chicago Hospital; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.08.011
• 发表日期: 2012
• 页码: 204-220
• 关键词: CAPM; Asset pricing anomalies; cost of capital; beta; Capital budgeting

摘要

We argue that the empirical evidence against the capital asset pricing model (CAPM) based on stock returns does not invalidate its use for estimating the cost of capital for projects in making capital budgeting decisions. Because stocks are backed not only by projects in place, but also by the options to modify current projects and undertake new ones, the expected returns on stocks need not satisfy the CAPM even when expected returns of projects do. We provide empirical support for our arguments by developing a method for estimating firms' project CAPM betas and project returns. Our findings justify the continued use of the CAPM by firms in spite of the mounting evidence against it based on the cross section of stock returns. (C) 2011 Elsevier B.V. All rights reserved.