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The Best Asset Pricing Model for Estimating Industry Costs of Equity in Tunisia

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  • Chaibi Hasna

    (Institut Supérieur de Gestion de Tunis)

  • Ben Naceur Sami

    (International Monetary Fund)

Abstract

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.

Suggested Citation

  • Chaibi Hasna & Ben Naceur Sami, 2010. "The Best Asset Pricing Model for Estimating Industry Costs of Equity in Tunisia," Review of Middle East Economics and Finance, De Gruyter, vol. 5(3), pages 63-90, February.
    • Handle: RePEc:bpj:rmeecf:v:5:y:2010:i:3:n:4
    DOI: 10.2202/1475-3693.1210
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    References listed on IDEAS

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    Cited by:

    1. Nadia Loukil & Mohamed Bechir Zayani & Abdelwahed Omri, 2010. "Impact of liquidity on stock returns: an empirical investigation of the Tunisian stock market," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 3(2), pages 261-283.
    2. Hammami Yacine & Jilani Faouzi, 2011. "Testing Factor Pricing Models in Tunisia: Macroeconomic Factors vs. Fundamental Factors," Review of Middle East Economics and Finance, De Gruyter, vol. 7(2), pages 1-22, September.
    3. Lagoarde-Segot, Thomas, 2013. "Does stock market development always improve firm-level financing? Evidence from Tunisia," Research in International Business and Finance, Elsevier, vol. 27(1), pages 183-208.

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