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The cost of capital in internationally integrated markets: The case of Nestlé

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  • René M. Stulz

Abstract

This paper argues that the cost of capital for firms in small countries should be estimated using the global CAPM rather than a local CAPM. Two related formulas showing the mistake made when using a local CAPM rather than a global CAPM are presented. the global CAPM is implemented for the case of Nestlé and the results are compared to the cost of capital estimate one obtains for Nestlé using a local CAPM when the global CAPM is appropriate.

Suggested Citation

  • René M. Stulz, 1995. "The cost of capital in internationally integrated markets: The case of Nestlé," European Financial Management, European Financial Management Association, vol. 1(1), pages 11-22, March.
    • Handle: RePEc:bla:eufman:v:1:y:1995:i:1:p:11-22
    DOI: 10.1111/j.1468-036X.1995.tb00003.x
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    References listed on IDEAS

    as
    1. Chan, K. C. & Karolyi, G. Andrew & Stulz, ReneM., 1992. "Global financial markets and the risk premium on U.S. equity," Journal of Financial Economics, Elsevier, vol. 32(2), pages 137-167, October.
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    3. Olivier J. Blanchard, 1993. "Movements in the Equity Premium," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 75-138.
    4. Rene M. Stulz, 1994. "International Portfolio Choice and Asset Pricing: An Integrative Survey," NBER Working Papers 4645, National Bureau of Economic Research, Inc.
    5. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    6. Kaplan, Steven N & Ruback, Richard S, 1995. "The Valuation of Cash Flow Forecasts: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 50(4), pages 1059-1093, September.
    7. Harvey, Campbell R, 1991. "The World Price of Covariance Risk," Journal of Finance, American Finance Association, vol. 46(1), pages 111-157, March.
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