In this study, a comparison was made between the Capital Asset Pricing Model (CAPM), the most widely used methodology, and an actuarial method with the use of credit default swaps (CDSs) and the method based on the inverse of the multiple P/E. These three models are used to estimate the cost of equity. The comparison was made on a sample of 24 banks selected among the largest for assets in the world (too big to fail banks) belonging to 11 different countries. The results show that the CAPM estimates a premium for the higher risk than the one obtained with the actuarial method and the method based on the inverse of the P/E (except for 2013).
Different methods to estimating the cost of equity. An analysis on a sample of too big to fail banks
Fontana, Stefano;
2019-01-01
Abstract
In this study, a comparison was made between the Capital Asset Pricing Model (CAPM), the most widely used methodology, and an actuarial method with the use of credit default swaps (CDSs) and the method based on the inverse of the multiple P/E. These three models are used to estimate the cost of equity. The comparison was made on a sample of 24 banks selected among the largest for assets in the world (too big to fail banks) belonging to 11 different countries. The results show that the CAPM estimates a premium for the higher risk than the one obtained with the actuarial method and the method based on the inverse of the P/E (except for 2013).I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
