Estimation of the Cost of Equity in the Turkish Insurance Sector Using the Full Information Beta (FIB) Method: A Comparative Analysis of the CAPM, FF3F, and R-L Models

Abdullah Buğra Soylu and Haşim ÖZÜDOĞRU

Fiscaoeconomia, 2025, issue 2

Abstract: This study aims to calculate the cost of equity (COE) for both publicly listed and non-listed insurance companies operating in the Turkish insurance sector. The insurance sector, characterized by its unique risk structure and financial dynamics, requires methodologies beyond traditional COE calculation methods due to its complex nature. This study integrates the Capital Asset Pricing Model (CAPM), Fama-French Three-Factor Model (FF3F), and Rubinstein-Leland (R-L) model using the Full Information Beta (FIB) technique, comparing their abilities to accurately estimate COE. The findings reveal that the R-L model provides lower error rates compared to other models in estimating COE in the complex and heterogeneous environment of the insurance sector. Therefore, the R-L model appears to be a more suitable tool for decision-making regarding capital allocation and risk management in insurance companies. This research offers a significant contribution to the literature by serving as a guide for determining the most appropriate COE estimation model for the insurance sector.

Keywords: Insurance Sector; Cost of Equity (COE); Full Information Beta (FIB); CAPM; Fama-French Three-Factor Model (FF3F); Rubinstein-Leland (R-L) Model (search for similar items in EconPapers)
JEL-codes: G22 M10 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://dergipark.org.tr/en/download/article-file/4387216

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fis:journl:250205

DOI: 10.25295/fsecon.1589870

Access Statistics for this article

More articles in Fiscaoeconomia from Tubitak Ulakbim JournalPark (Dergipark)
Bibliographic data for series maintained by Emre Atsan ().