The Best Asset Pricing Model for Estimating Industry Costs of Equity in Tunisia
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Hasna Chaibi
The Capital Asset Pricing Model (CAPM) has dominated finance theory for over 30 years; it suggests that the market beta alone is sufficient to explain security returns. However, evidence shows that the cross-section of stock returns cannot be described solely by the one-factor CAPM. Alternative studies have been proposed in response to the poor performance of the standard CAPM. The main contribution of this paper is to offer to investors planning to invest the appropriate model for estimating the cost of equity in the Tunisian market. The paper allows choosing among the CAPM, the Fama&French asset-pricing model (TPFM), and the Four Factor Pricing Model (FFPM), which adds a third and fourth moment to estimate the cost of equity of firms listed on the Tunisian stock market. In addition to the classic, the selection of the best model is based on information criteria: the Akaike Information Criteria (AIC) and the Schwartz Information Criteria (SIC). The simple FFPM of Cahart proved to be the selected model.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- Technology, Political Economy, and Economic Development in the Middle East and North Africa
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- The Effects of Regional Trade Arrangements on Agri-Food Trade: An Application of the Gravity Modeling Approach to the Arab Gulf Cooperation Council (GCC) Countries
- The Best Asset Pricing Model for Estimating Industry Costs of Equity in Tunisia
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Articles in the same Issue
- Article
- Technology, Political Economy, and Economic Development in the Middle East and North Africa
- Viability of Keeping a Fixed Exchange Rate in an Oil Exporting Country: Some Results for Libya from a Computable General Equilibrium Model
- The Effects of Regional Trade Arrangements on Agri-Food Trade: An Application of the Gravity Modeling Approach to the Arab Gulf Cooperation Council (GCC) Countries
- The Best Asset Pricing Model for Estimating Industry Costs of Equity in Tunisia
- Bank Ownership and Corporate Performance: Evidence from Egypt
