1999
Aswath Damodaran
ABSTRACT
Over the last three decades, the capital asset pricing model has occupied a central and often controversial place
in most corporate finance analysts’ tool chests. The model requires three inputs to compute expected returns –
a riskfree rate, a beta for an asset and an expected risk premium for the market portfolio (over and above the
riskfree rate). Betas are estimated, by most practitioners, by regressing returns on an asset against a stock index,
with the slope of the regression being the beta of the asset. In this paper, we attempt to show the flaws in regression
betas, especially for companies in emerging markets. We argue for an alternate approach that allows us to estimate
a beta that reflect the current business mix and financial leverage of a firm.
Damodaran: (212) 998-0349 adamodar@stern.nyu.edu
To download a copy of this paper click here
To request a copy of this paper click here
The Finance Department Working Paper Series has been generously sponsored by