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Julio Sarmiento-Sabogal


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Photo of Julio Sarmiento
  • Title: Mr
  • Position: PhD Student - Department of Applied Finance and Actuarial Studies

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Student information

  • Load: PhD Student Full Time
  • Principal supervisor: Dr Mehdi Sadeghi
  • Date of submission: 14/06/2014
  • Thesis title: The Cost of Equity for Non-traded firms in Emerging Markets: A Latin-American Perspective
  • Abstract:

    The Cost of Equity Capital (Ke) is an important inside for managerial finance. There are two main approaches to calculate Ke: The first one computes the implied Internal Rate of Return of the current stock market price and the future income stream expected to be received by the company owners. The second approach derives the specific firm’s risk in the future equity payoffs using the asset pricing models. The fact that all asset pricing models require the stock price to compute Ke imposes limitations to apply them in unlisted companies. The most common proposed method to resolve the lack of information problem is the application of accounting fundamentals as a substitute for the unknown market variables in the asset pricing models. These methods are commonly known as Proxy Methods. Although the three proxy methods have been tested separately in developed markets, surprisingly few studies have attempted to compare their results. There is little information regarding which of these approaches is more accurate in relation to each other and whether they are interconnected.

    The main objective of current study is to investigate the most efficient method of estimating the cost of equity for non-traded firms in Latin-American (LATAM) countries.

  • Keywords: CAPM, Cost of capital, Accounting Betas