Estimation of the Cost of Equity by Considering the Interdependences between Capital Markets

The econometric models are frequently used in order to estimate the cost of equity in case of investments in the assets traded on the capital market. The utilization of these models as a basis for investment decisions aims at providing as correct as possible estimations regarding the level of the future return of these assets, and thus at eliminating the uncertainty that characterize financial environment. The current paper presents the steps we have taken in order to build, to ground and to validate a new econometric model for the estimation of the cost of equity which is specific to the Romanian capital market. As an integrant part of a complex study of the above-mentioned field, this model is based on a series of premises demonstrated within a previous research. The consideration of interdependences between capital markets represents the novelty element of the model, and brings a surplus of usefulness and accuracy in estimation.