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dc.contributor.authorBarnes, Michelle L.en_US
dc.contributor.authorLopez, Jose A.en_US
dc.date.accessioned2012-06-20T16:10:02Z-
dc.date.available2012-06-20T16:10:02Z-
dc.date.issued2005en_US
dc.identifier.urihttp://hdl.handle.net/10419/59244-
dc.description.abstractThe Monetary Control Act of 1980 requires the Federal Reserve System to provide payment services to depository institutions through the twelve Federal Reserve Banks at prices that fully reflect the costs a private-sector provider would incur, including a cost of equity capital (COE). Although Fama and French (1997) conclude that COE estimates are woefully and unavoidably imprecise, the Reserve Banks require such an estimate every year. We examine several COE estimates based on the Capital Asset Pricing Model (CAPM) and compare them using econometric and materiality criteria. Our results suggest that the benchmark CAPM applied to a large peer group of competing firms provides a COE estimate that is not clearly improved upon by using a narrow peer group, introducing additional factors into the model, or taking account of additional firm-level data, such as leverage and line-of-business concentration. Thus, a standard implementation of the benchmark CAPM provides a reasonable COE estimate, which is needed to impute costs and set prices for the Reserve Banks' payments business.en_US
dc.language.isoengen_US
dc.publisherFederal Reserve Bank of Boston Boston, MAen_US
dc.relation.ispartofseriesPublic policy Discussion Papers, Federal Reserve Bank of Boston 05,2en_US
dc.subject.jelG11en_US
dc.subject.jelG28en_US
dc.subject.ddc330en_US
dc.subject.keywordcost of equityen_US
dc.subject.keywordreturn on equityen_US
dc.subject.keywordCAPMen_US
dc.subject.keywordpayments systemen_US
dc.subject.stwKapitalkostenen_US
dc.subject.stwZahlungsverkehren_US
dc.subject.stwZentralbanken_US
dc.subject.stwMessungen_US
dc.subject.stwCapital Asset Pricing Modelen_US
dc.subject.stwUSAen_US
dc.titleAlternative measures of the Federal Reserve Banks' cost of equity capitalen_US
dc.typeWorking Paperen_US
dc.identifier.ppn505301059en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Public Policy Discussion Papers, Federal Reserve Bank of Boston

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