Portuguese average cost of capital

Jose Carlos Costa, Maria Eugenia Mata and David Justino

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: The oldest Portuguese share index still being calculated is the BVL/PSI-General, one which started the daily series on 5/Jan/1988 with a base value of 1000 points. Everyday a single value is computed based on the closing prices of all the shares included in the sample. Also, all corporate events affecting the price of any share beyond market sentiment are taken into account through proper adjustments, either in the numerator or the denominator of the formula. However, for dates before January 1988, there is nothing comparable to this index since the two different series known either never disclosed the methodology adopted to calculate the index or followed solutions not compatible with the above index. The present paper explains the solutions adopted to replicate as closely as possible the methodology of the BVL-General index to the main market of the Lisbon Exchange for the period 1978 1987. This is the first estimate of the historical Equity Risk Premium in Portugal above short-term riskfree rate from the re-opening of the market following the Carnation Revolution (and the accompanying nationalizations), to the present. In showing a value of the same order of magnitude found in other countries, the paper invites further studies on the effects of political decisions such as privatizations and joining the European Union.

Pages: 34 pages
Date: 2009
New Economics Papers: this item is included in nep-his
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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp543

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