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

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  • Swee-Sim, Foong

    () (Faculty of Economics and Administration, University of Malaya, 50603 Kuala Lumpur)

  • Kim-Leng, Goh

    (School of Distance Education Universiti Sains Malaysia, 11800 USM ,Pulau Pinang)

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.

Suggested Citation

  • Swee-Sim, Foong & Kim-Leng, Goh, 2010. "Measuring the Cost of Equity of Emerging Market Firms: The Case of Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 6(1), pages 25-46.
  • Handle: RePEc:usm:journl:aamjaf00601_25-46
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    File URL: http://web.usm.my/journal/aamjaf/vol6-1-2010/6-1-2.pdf
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    Cited by:

    1. repec:krk:eberjl:v:1:y:2013:i:4:p:37-56 is not listed on IDEAS
    2. Yury Dranev & Sofya Fomkina, 2013. "An asymmetric approach to the cost of equity estimation: empirical evidence from Russia," HSE Working papers WP BRP 12/FE/2013, National Research University Higher School of Economics.

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    Keywords

    CAPM; cost of equity; downside risk; firm dex;

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