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An evaluation of airline beta values and their application in calculating the cost of equity capital

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  • Turner, Sheelah
  • Morrell, Peter

Abstract

This paper focuses on the calculation of the cost of equity capital in a sample of airlines, in comparison to industry-calculated values. The approach usually taken is to apply the Capital Asset Pricing Model to airline stock prices and market indices. The research shows that the calculated β values are sensitive to the precise methodology and calculations used. Further, the low regression model fits indicate the Capital Asset Pricing Model may not be the most suitable model for β value calculations. The emerging β values are lower than expected, and possible causes of this are discussed.

Suggested Citation

  • Turner, Sheelah & Morrell, Peter, 2003. "An evaluation of airline beta values and their application in calculating the cost of equity capital," Journal of Air Transport Management, Elsevier, vol. 9(4), pages 201-209.
    • Handle: RePEc:eee:jaitra:v:9:y:2003:i:4:p:201-209
    DOI: 10.1016/S0969-6997(02)00085-6
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    Citations

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    Cited by:

    1. Button, Kenneth, 2005. "A simple analysis of the rent seeking of airlines, airports and politicians," Transport Policy, Elsevier, vol. 12(1), pages 47-56, January.
    2. Gong, Stephen X.H., 2007. "Bankruptcy protection and stock market behavior in the US airline industry," Journal of Air Transport Management, Elsevier, vol. 13(4), pages 213-220.
    3. Lee, Chyn-Hwa & Hooy, Chee-Wooi, 2012. "Determinants of systematic financial risk exposures of airlines in North America, Europe and Asia," Journal of Air Transport Management, Elsevier, vol. 24(C), pages 31-35.
    4. Chuang, I-Yuan & Lu, Jin-Ray & Chen, Ching-Fu, 2006. "Estimating the systematic risk of airlines: A methodological comparison," Journal of Air Transport Management, Elsevier, vol. 12(2), pages 103-105.
    5. Gong, Stephen X.H. & Firth, Michael & Cullinane, Kevin, 2006. "The information content of earnings releases by global airlines," Journal of Air Transport Management, Elsevier, vol. 12(2), pages 82-91.
    6. Hung, Jung-Hua & Liu, Yong-Chin, 2005. "An examination of factors influencing airline beta values," Journal of Air Transport Management, Elsevier, vol. 11(4), pages 291-296.
    7. Singh, Kewal & Singh, Anoop & Prakash, Puneet, 2022. "Estimating the cost of equity for the regulated energy and infrastructure sectors in India," Utilities Policy, Elsevier, vol. 74(C).

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