Nigokhos Krikorov Kanaryan, Peter Chuknyisky and Violeta Kasarova
The International Valuations Standards Committee adopts the Capital Asset Pricing Model as a method for estimation of the cost of equity. It has several drawbacks and appraisers…
Abstract
Purpose
The International Valuations Standards Committee adopts the Capital Asset Pricing Model as a method for estimation of the cost of equity. It has several drawbacks and appraisers in emerging markets need more useful model for cost of equity estimation. The paper aims to discuss these issues.
Design/methodology/approach
The proposed model is a modification of the Salomon Smith Barney model for cost of capital determination. The econometric part of the model incorporates the non-synchronous effect, the thin trading effect, the time varying risk nature, and the systematic country risk.
Findings
The model estimates the cost of equity of Bulgarian REITs more accurate than the one, who uses the traditional β estimation.
Practical implications
The study provides appraisers, business consultants, and investment bankers with a consistent model for cost of equity estimation. The model incorporates most of the features of emerging markets REITs return series and avoids the weaknesses of the single-factor model for cost of equity estimation in emerging markets.
Originality/value
The proposed model reflects the following characteristics: the degree of diversification of the particular investor (imperfectly diversified); country risk; and time-varying risk nature. The political risk is incorporated by more objective measure of the systematic country risk.
Details
Keywords
Plamen Patev, Nigokhos Kanaryan and Katerina Lyroudi
To investigate the Central and Eastern European (CEE) equity market co‐movements before, during and after major emerging market crises. To examine the impact of the crisis on the…
Abstract
Purpose
To investigate the Central and Eastern European (CEE) equity market co‐movements before, during and after major emerging market crises. To examine the impact of the crisis on the gains of international portfolio diversification in CEE.
Design/methodology/approach
The study is based on the concept of co‐integration. The daily US dollar returns are analyzed for the period August 28, 1996 to August 2, 2001. The whole period is split into three sample periods. The first one is the pre‐crisis period from August 28, 1996 to May 30, 1997. The crisis period is from June 2, 1997 to January 31, 1999. The third period is the post‐crisis from February 1, 1999 to August 31, 2001.
Findings
Indicates no long‐run relationship between the US and the four Central European stock markets. Demonstrates a feedback effect and causality in one direction during and after the crisis period. Confirms a decrease of portfolio benefits in the crisis period and an increase of portfolio benefits in the post‐crisis period.
Research limitations/implications
It is based on econometrics tests that quantify market integration and measure opportunities for international portfolio diversification. Employment of asset pricing models is viewed as a future research.
Practical implications
A very useful source of information for investors in Central and Eastern Europe.
Originality/value
One of the first papers investigated the benefits from portfolio investments in Central and Eastern Europe stock markets during financial crises.