Monday, September 17, 2007

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%

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