Foreign Exchange Exposure and Cost of Equity for US Companies : Local Versus Global CAPM

For U.S. firms with extreme foreign exchange (FX) exposure levels, we ask whether the single-factor global CAPM yields significantly different cost of equity estimates from the local CAPM. For a sample of U.S. firms from 2000-2007, we find a clear and statistically significant relation between the differences of the two models' cost of equity estimates and the firms' FX exposure estimates. However, the economic significance is questionable, even for firms with extreme FX exposure levels