Cross-Border Valuation Using the International CAPM and the Constant Perpetual Growth Model

A cross-border translation method is proposed that accounts for a currency risk premium and the economic interaction between cash flows and exchange rates. These inputs are ignored in the conventional method, which is based on interest rate parity. The proposed method is consistent with the International CAPM (ICAPM), but the conventional method is not. Using empirical data from 12/31/1998 to 6/30/2020 and the constant perpetual growth model, the study illustrates the conventional method's potentially substantial valuation error if the ICAPM is the risk-return model