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- Title
Estimating Cost of Equity: Do You Need to Adjust for Foreign Exchange Risk?
- Authors
Krapl, Alain; O'Brien, Thomas J.
- Abstract
Empirical reports of priced foreign exchange ( FX) risk raise the question of whether managers should adjust their cost of equity estimates for FX risk. To study this question, we empirically compare the cost of equity estimates of several risk-return models, including some that have explicit FX risk premia and others that do not. We find that adjusting for FX risk makes little difference, on average, in the cost of equity estimates, even for small firms and firms with extreme FX exposure estimates.
- Subjects
CAPITAL costs; FOREIGN exchange market; RISK-return relationships; RISK premiums; MARKET exposure (Investments)
- Publication
Journal of International Financial Management & Accounting, 2016, Vol 27, Issue 1, p5
- ISSN
0954-1314
- Publication type
Article
- DOI
10.1111/jifm.12031