I just want to refresh my memory and perhaps learn a thing or two about this. I have two questions regarding CAPM.
If I am a US investor looking to invest in Russia, do I use the US risk-free rate and market risk premium in the CAPM equation or the Russian one?
Also if I am analyzing the Russian investment using DCF (5 years of projections), which Beta should I use? The 1-Year Beta, 3-Year or 5-Year? Any reasoning behind the usage of an appropriate Beta between these three?
For a US investor looking to invest in Russia should use US RFR, US MRP and then add country risk premium to it . You could also use Russian RFR and MRP and then use Interest Rate Parity to get US equivalent.
It is industry standard to use 60 months regression model which is 5 year beta to overcome short-term fluctuations.