The Economist's adjusted Big Mac index takes GDP into account in currency valuation, but the methodology is not explained. We show that the key to understanding the methodology is to distinguish between a currency's bilateral valuation (versus a specific currency) and the currency's overall...

For individual stocks of 46 countries, this study investigates empirical differences in discount rate estimates between three risk-return models of interest to managers who perform discounted cash flow valuation analysis: (1) the traditional (local) CAPM; (2) the global CAPM (GCAPM), where the...