Abstract
This study contrasts different standard techniques for estimating discount rates (the cost of equity capital) in a company (equity) valuation setting. The aim is to provide indications on the usefulness of different asset pricing n10dels for this particular purpose. The empirical study finds that using cross-sectionally constant discount rates provides more reliable value estimates for individual stocks than does using standard CAPM implen1entations, which in tum dominate the so-called three-factor model. The likely reason is that estimation uncertainty plagues the more elaborate discount rate estimation techniques (the CAPM and the three-factor model) to such an extent that it overshadows any potential gains from using what may be more 'correct' models ofmarket equilibrium.