The Development of Cost of Equity Forecasting Model for Common Stocks in Stock Exchange of Thailand

Abstract

This study aimed to develop both of cost of equity forecasting models and risk analytical models for common stocks in Stock Exchange of Thailand (SET) by using the multi-factor model. The results showed that market risk, size risk, value risk, and momentum risk have significantly effected to the cost of equity, except the exchange rate risk. Moreover, the comparative study of models for forecasting efficiency found that the model developed from this study can predict cost of equity different from Capital Asset Pricing Model (CAPM) and other multi factors Model. The results of analytical risks also showed the relationship between risk factors and the fundamental data in vary situations. The asset sizing has high positive relationship with the market risk. On the other hand, the asset sizing has negative relationship with size risk. Finally, the profitability, dividend, capital structure, the value of common stock, and growth has impact the 4 risks of the cost of capital.