Empirical analysis of the generalized consumption asset pricing model: Estimating the cost of capital

•Only DCF and CAPM models are widely adopted to estimate costs of capital.•GCAPM is empirically tested and applied to estimate the cost of capital.•Empirical analyses for publicly traded public utilities and US stock market.•GCAPM results are robust, predicts CAPM estimate turning points.

Other than the problematic discounted cash flow and capital asset pricing models that have been used for decades, no other asset pricing models have generally been adopted for estimating the cost of common equity capital. A recently developed and promising general consumption asset pricing model for estimating costs of common equity is successful in empirical tests and applied for estimating the cost of common equity. This research presents an empirical investigation of the model for application to the regulation of public utilities and stock market and compares the cost of capital results with the CAPM. The model is applicable for estimating the cost of common equity capital for any stock. The paper recommends that the GCAPM be considered as an additional asset model with the others that are typically used as additional information in estimating the cost of common equity capital.