An evaluation of airline beta values and their application in calculating the cost of equity capital.

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2003-07

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Elsevier

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Article

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0969-6997

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Sheelah Turner and Peter Morrell, An evaluation of airline beta values and their application in calculating the cost of equity capital, Journal of Air Transport Management, Volume 9, Issue 4, July 2003, Pages 201-209.

Abstract

This paper focuses on the calculation of the cost of equity capital in a sample of airlines, in comparison to industry-calculated values. The approach usually taken is to apply the Capital Asset Pricing Model to airline stock prices and market indices. The research shows that the calculated b values are sensitive to the precise methodology and calculations used. Further, the low regression model fits indicate the Capital Asset Pricing Model may not be the most suitable model for b value calculations. The emerging b values are lower than expected, and possible causes of this are discussed.

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