The cost of equity for global banks: a CAPM perspective from 1990 to 2009
This article provides estimates of the inflation-adjusted cost of equity for banks in six countries over the period 1990-2009. This cost is estimated using the single-factor capital asset pricing model (CAPM), where expected stock returns are a function of risk-free rates and a bank-specific risk premium. Cost of equity estimates declined steadily across all countries from 1990 to 2005 but then rose from 2006 onwards. The fall in the cost of equity reflects (i) the decrease in risk-free rates over this period, and (ii) a decline in the sensitivity of bank stock returns to market risk (the CAPM beta) in all countries except Japan. The estimates show wide variation across banks, highlighting the difficulty of estimating expected returns using the CAPM.
Volume (Year): (2009)
Issue (Month): (September)
|Contact details of provider:|| Postal: Centralbahnplatz 2, CH - 4002 Basel|
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
- Barnes, Michelle L. & Lopez, Jose A., 2006.
"Alternative measures of the Federal Reserve Banks' cost of equity capital,"
Journal of Banking & Finance,
Elsevier, vol. 30(6), pages 1687-1711, June.
- Michelle L. Barnes & Jose A. Lopez, 2005. "Alternative measures of the Federal Reserve banks' cost of equity capital," Public Policy Discussion Paper 05-2, Federal Reserve Bank of Boston.
- Michelle L. Barnes & Jose A. Lopez, 2005. "Alternative measures of the Federal Reserve banks' cost of equity capital," Working Paper Series 2005-06, Federal Reserve Bank of San Francisco.
- Stein, Jeremy C., 1996.
"Rational Capital Budgeting in an Irrational World,"
3708373, Harvard University Department of Economics.
- Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
- J. Bradford DeLong & Konstantin Magin, 2009. "The U.S. Equity Return Premium: Past, Present, and Future," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 193-208, Winter.
When requesting a correction, please mention this item's handle: RePEc:bis:bisqtr:0909g. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.