Abstract

The purpose of this study is to bring out the disparities in the cost of equity of Indian companies estimated using the three asset pricing models such as the Capital Asset Pricing Model (CAPM), the Fama-French Three-Factor (FF3F) model, and the Carhart four-factor model. The stock price data of 489 companies listed in the National Stock Exchange (NSE) from 2012 to 2019 (8 years) were used for estimating the cost of equity capital. The coefficients of the factors in the models were estimated applying Ordinary Least Square (OLS) regression method. One-way ANOVA was used to examine the group-wise differences in the cost of equity. The computed cost of equity of Indian companies significantly differs among the three estimation models. Further, significant differences in the cost of equity were observed across industries in all three estimation models. Market capitalization-wise, differences in cost of equity were found as per CAPM and FF3F model. But no such differences were found in the case of Carhart's four-factor model. Sector-wise analysis doesn’t show differences in the cost of equity.

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