Measuring the Cost of Equity of Emerging Market Firms: The Case of Malaysia

Foong Swee-Sim () and Kim-Leng Goh
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Foong Swee-Sim: Faculty of Economics and Administration, University of Malaya, 50603 Kuala Lumpur

Asian Academy of Management Journal of Accounting and Finance (AAMJAF), 2010, vol. 6, issue 1, 25-46

Abstract: Valuation in an emerging market like Malaysia poses to be a great challenge because there is no clear single 'best practice' for the valuation of assets and securities in emerging markets. Adopting some of the emerging market models reviewed in Pereiro (2001), together with the two-factor CAPM models proposed in this study, we make a comparison between standard risk measures and downside risk measures to estimate the cost of equity of Malaysian firms over the period of 2000–2007. Overall, the results are consistent with the literature which supports downside risk measures over standard risk measures. Also, our model, which considers both local and global risk factors, has higher explanatory power than models that consider only one kind of risk factor. Most importantly, the results show that unsystematic risks, or firm-specific risks, may have increased in recent years.

Keywords: CAPM; cost of equity; downside risk; firm dex (search for similar items in EconPapers)
Date: 2010
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