Estimation of Capital Beta and Cost of Capital: A Focus on Japanese Property-liability Insurance Companies and Lines of Business
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Yoko Shirasu
In this paper we estimate the equity beta and cost of capital of Japanese property liability insurance companies. For this, we obtain the overall equity beta and cost of capital for each company and then estimate the equity beta and cost of capital by the business lines. To obtain a company’s overall equity beta, we use the one-factor capital asset pricing model (CAPM) and the three-factor Fama-French (FF) model. To estimate each business line’s equity beta, we use the full-information industry beta (FIB) methodology. Econometric analysis reveals that the CAPM and FF models are well suited to estimating Japanese property-liability insurance companies’ the equity beta and cost of capital. Furthermore, by using the FIB methodology, we find that each the equity beta of each business line is different.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Featured Article
- A Bayesian Comparison of Models for Changing Mortalities toward Evaluating Longevity Risk in Japan
- Missing (Completely?) At Random: Lessons from Insurance Studies
- Elaborating a Catastrophic Loss Index for Insurance-linked Securities (ILS): A Continuous Model
- Valuing Surrender Options in Korean Interest Indexed Annuities
- Estimation of Capital Beta and Cost of Capital: A Focus on Japanese Property-liability Insurance Companies and Lines of Business
- Alternative Pricing Models of Deposit Insurance under Capital Forbearance
- A Comparison of Corporate Bankruptcy Models in Australia: The Merton vs. Accounting-based Models
- Country Study: 2008 Review of the Middle East and North Africa (MENA) Insurance Markets
Articles in the same Issue
- Featured Article
- A Bayesian Comparison of Models for Changing Mortalities toward Evaluating Longevity Risk in Japan
- Missing (Completely?) At Random: Lessons from Insurance Studies
- Elaborating a Catastrophic Loss Index for Insurance-linked Securities (ILS): A Continuous Model
- Valuing Surrender Options in Korean Interest Indexed Annuities
- Estimation of Capital Beta and Cost of Capital: A Focus on Japanese Property-liability Insurance Companies and Lines of Business
- Alternative Pricing Models of Deposit Insurance under Capital Forbearance
- A Comparison of Corporate Bankruptcy Models in Australia: The Merton vs. Accounting-based Models
- Country Study: 2008 Review of the Middle East and North Africa (MENA) Insurance Markets
