Evidence on Industry Cost of Equity Estimators
Given that prior research into industry cost of equity indicates that CAPM-derived estimates are no worse
than estimates from more complex models, we investigate the bias of the standard CAPM approach for
each industry separately, and examine the effectiveness of alternative beta estimators. We find that constant
betas produce better estimates of cost of equity for particular industries (mostly either ?defensive? or ?highrisk?
industries). The paper succeeds in offering a meaningful assessment of the empirical reality of the
CAPM, as well as offering guidance concerning the appropriate practical application of the CAPM when
estimating industry cost of equity.