Cost of Capital Estimation Models in Emerging Markets

Abstract

Author: Yuri Y. Dranev National Research University The Higher School of Economics dranioff@hotmail.com

The estimation of the cost of equity is one of the actual issues studied by corporate finance. Certain features of emerging markets do not always allow the use of traditional methods of the cost of equity estimation. Indeed, emerging markets are characterized by additional risks associated with the market inefficiencies, limited diversification possibilities as well as institutional features of developing countries. A significant number of researchers tried to develop new models of the cost of equity estimation to account for these risks. However, empirical tests of these models have often led to contradicting results.This paper provides review of the articles which with empirical tests and theoretical analysis of the most widely spread models of the cost of equity capital estimation.