Dear Quantitative Finance Members,
I was wondering if you can clarify me the following issue. I am trying to estimate the cost of equity following "Industry costs of equity" (Fama and French, 1997). I am not sure if I correctly understood the steps that I need to follow. Here they are:
- Obtain firm returns (from CRSP database) and SMB, HML, Rm-rf from Fama and French website.
- Run $$R_i -r_f = \beta_0 + \beta_1(R_m-r_f) + \beta_2 SMB + \beta_3 HML$$ over each out of 48 industries, whole sample.
- Save estimated coefficients of $\beta_0, \beta_1, \beta_2, \beta_3$
- Estimate fitted Cost of Equity ($CE$) as $$CE = \beta_0 + \beta_1 \times (R_m-r_f) + \beta_2 \times (SMB) + \beta_3 \times (HML)$$
Please, correct me if I am wrong