Market Risk Premium

From Jan 2000 to Jul 2007 treasury bills returned an annualized average of 7.77%. Over the same period the NSE Index's monthly return annualized average was 11.68%. While this period is not long enough to capture full economic cycles it implies that the market risk premium on the NSE is 3.91%

This number surprises me given that the comparable market risk premium in the US is approximately 6%.

Another reason why this astounds me is that it implies -- if we apply CAPM -- that the cost of equity is less than the cost of debt for many companies. Wow.

Here's the table

STOCK	BETA	Cost of Equity
NATIONAL BANK	1.85	11.2%
SASINI TEA & COFFE	1.78	10.9%
NATION MEDIA GROUP	1.71	10.6%
KP&L	1.61	10.2%
SAMEER AFRICA LTD	1.52	9.9%
BARCLAYS BANK KENYA	1.43	9.5%
ICDCI	1.41	9.4%
KCB	1.40	9.4%
NIC	1.34	9.2%
EAST AFRICAN CABLE	1.29	9.0%
GEORGE WILLIAMSON	1.22	8.7%
DIAMOND TRUST	1.19	8.5%
KENYA AIRWAYS	1.16	8.4%
STANDARD CHARTERED BANK KENYA	1.15	8.4%
CMC HOLDINGS	1.14	8.4%
STANDARD NEWSPAPER	1.11	8.3%
JUBILEE HOLDINGS LTD	1.06	8.1%
CROWN BERGER	1.05	8.0%
NSE INDEX	1.00	7.8%
MUMIAS SUGAR	0.97	7.7%
EQUITY BANK	0.94	7.6%
CFC BANK	0.93	7.5%
CITY TRUST	0.93	7.5%
BAMBURI CEMENT LTD	0.92	7.5%
EXPRESS KENYA LTD	0.92	7.5%
BAT KENYA	0.87	7.3%
ATHI RIVER MINING	0.85	7.2%
KAKUZI	0.82	7.1%
HFCK	0.81	7.1%
KENGEN	0.72	6.7%
REA VIPINGO	0.70	6.7%
ACCESSKENYA	0.68	6.6%
SCAN GROUP	0.67	6.5%
CAR & GENERAL	0.66	6.5%
UNGA GROUP	0.64	6.4%
KENYA OIL	0.58	6.2%
TOTAL KENYA	0.54	6.0%
TPS EASTERN AFRICA	0.51	5.9%
EVEREADY	0.49	5.8%
UNILEVER TEA KENYA	0.43	5.6%
EAST AFRICAN PORTLAND CEMENT	0.43	5.6%
OLYMPIA CAPITAL HOLDINGS	0.40	5.5%
EAST AFRICAN BREWERIES	0.39	5.4%
PAN AFRICA INSURANCE	0.20	4.7%
EAAGADS	0.15	4.5%
KAPCHORUA TEA	0.15	4.5%
MARSHALLS E.AFRICA	0.03	4.0%
KENYA RE-INSURANCE	(0.42)	2.3%
A BAUMANN & CO	(0.74)	1.0%