Hi
Is it right to add specific risk of the industry to the discount rate obtained by CAPM model? Is there any incosistency?

Question

Hi 
Is it right to add specific risk of the industry to the discount rate obtained by CAPM model? Is there any incosistency?

anonymous · Answer

No, that's incorrect.  The discount rate calculated through CAPM should already reflect the industry risk of the company under analysis.

anonymous · Answer

Hi there,
            I believe what you would be looking for is something similar to the Bond Yield plus return measure. This is a lot of work because it requires data accumulation for the entire industry and market behavior towards each valuation metric. 

Take a look at the Fama French version of CAPM that allows for premiums added on size and value.