European Business Schools Librarian's Group

IESE Research Papers,
IESE Business School

No D/491: Cost of equity of Internet stocks: A downside risk approach, The

Javier Estrada ()
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Javier Estrada: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

Abstract: Beta as a measure of risk has been under fire for many years. Although practitioners still widely use the CAPM to estimate the cost of equity of companies, they are aware of its problems and are looking for alternatives. One possible alternative is to estimate the cost of equity based on the semideviation, a well-known and intuitively plausible measure of downside risk. Complementing evidence reported elsewhere about the ability of the semideviation to explain the cross-section of returns in emerging markets and that of industries in emerging markets, this article reports results showing that the semideviation also explains the cross-section of Internet stock returns.

Keywords: downside risk; semideviation; asset pricing

JEL-codes: G12

20 pages, February 14, 2003

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