Mayanja, Abubaker B. and Legesi, Kenneth (2007): Risk and Return on Uganda's stock exchange. Forthcoming in: Capital Markets Journal
Download (317kB) | Preview
Using data from 2003-2007, we calculate the systematic risk and cost of equity for firms listed on USE; Preliminary estimates show that nominal Cost of equity capital reduced over time from 63.24 percent (January 2005 to January 2006) to 18% (February 2006 to March 2007). The efficient frontier shifted below in the period considered to suggest a general lowering of expected returns on portfolios, re-affirming the notion that stock markets lead to reduction in the cost of funds; and thus a viable option to bank finance that at the moment is considered prohibitive with annual percentage rates of between 20-25.
|Item Type:||MPRA Paper|
|Original Title:||Risk and Return on Uganda's stock exchange.|
|English Title:||Cost Of Equity Capital and Risk on USE: Equity finance; bank finance, which one is cheaper?|
|Keywords:||Cost of equity capital, Beta, CAPM, Uganda Securities Exchange (USE)|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
|Depositing User:||Abubaker Mayanja|
|Date Deposited:||20. Dec 2007 11:39|
|Last Modified:||07. Jan 2014 19:45|
Atuhairwe H. and W. Tarinyeba (2005), The Legal and Regulatory Framework for the Protection of Minority Shareholders in Uganda (Capital Markets Journal, Vol.9, No.3, July-Sept., pp.18-23, Capital markets Authority
Banz, R. W. (1981) “The Relationship between Return and Market Value of Common Stocks,’ Journal of Financial Economics”
Basu, S. (1977), “Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis,” Journal of Finance
Bhandari, L.C. (1988), “Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence,” Journal of Finance, vol. 43 (2) pp.507-28 June
Black, F. (1972), “Capital Market Equilibrium with Restricted Borrowing,” Journal of Business.
Blume, M. (1970) “Portfolio Theory: A Step towards its Practical Application,” Journal of Business.
Blume, M., and I. Friend (1973) “A New Look at the Capital Asset Pricing Model,” Journal of Finance.
Bohnstedt A., A. Hannig, R. P. Odendall (2000) “Capital Market Development in Uganda- private sector opinions on listing” FSD series No. 2 Bank of Uganda - German Technical co-operation, Financial System Development(FSD) Project
Brealy R.A., S.C. Myers and F. Allen (2006) “Principles of Corporate Finance” New York, NY: McGraw-Hill Companies
Buringuriza E. , J. Hyltenstam (2002) “Capital Market Development in Uganda-statistical profile of the securities market” FSD series No. 2 Bank of Uganda-German Technical co-operation, Financial System Development(FSD) Project; Kampala
Capaul C., I. Rowley and W.F. Sharpe (1993) “International Value and Growth Stock Returns” Vol. 49, No.1: 27-36
Chan L.K.C., Y. Hamao and J. Lakonishok (1991) “Fundamentals of Stock Returns in Japan” Journal of Finance , Vol.46, No.5: pp.1739-1764
Dimson E., P.R. Marsh, and M. Staunton (2002) “Triumph of the optimists: 101 Years of Investment Returns” Princeton, NJ: Princeton University Press
Ekiring R. (2005), Capital Markets: An avenue for privatization in Uganda (Capital Markets Journal, Uganda, Vol.9, No.3, July- Sept 2005, pp.3-5, Capital Markets Authority.
Fama E.F. and K.R. French (1992) “The Cross-Section of Expected Stock Returns”- The Journal of Finance, Vol.47, No.2 Jan, pp.427-465
Fama E.F. and K.R. French (1996) “Multifactor explanations of Asset Pricing Anomalies” The Journal of finance, Vol.51, No.1 pp.55-84
Fernandez P., (2004) “Market Risk Premium: Required, Historical and Expected” Working Paper No. 574, International Centre for Financial Research (CIIF), IESE Business School, University of Navarra
Graham J.R. and C. R. Harvey “Expectations of Equity Risk Premia, Volatility and Asymmetry from a Corporate Finance Perspective” working Paper, Duke University, Fuqua school of Business, July, 2003
Jensen, M.C., F. Black and M.S. Scholes: “The Capital Asset Pricing Model: Some Empirical Tests” M.C. Jensen (Ed) Studies in the theory of capital markets, Praeger Publishers Inc, 1972, available at SSRN: http://ssrn.com/abstract=908569
Katto J. (2004) and W. Tarinyeba, Financial Sector Regulation in Uganda: A case for Consolidated Regulation (Capital Markets Journal, Vol.6 No.3, pp.7-10, 2004
Kothari, S. P., J. Shanken and R. G. Sloan (1995) “Another Look at the Cross-Section of Expected Stock Returns,” Journal of Finance.
Levy H. (1983) “The Capital Asset Pricing Model: Theory and Empiricism” The Economic Journal, Mar, Vol. 93, No.369, 145-165
Lintner, J. (1965), “The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets,” Review of Economics and Statistics.
Lutwama J. (2006), “Strategies for improving Liquidity in Uganda’s Capital Markets Industry” Capital Markets Journal, Uganda, Vol.10, No.1, Jan-mar 2006, pp.20-24, Capital markets Authority
Markowitz, Harry. (1952), “Portfolio Selection,” Journal of Finance, Vol. III, No.1, March
Ngumi J.,(2006) “Role of the Banking sector in the development of Capital Markets” Capital Markets Journal, Uganda, Vol.10, No.1, Jan-mar, pp.6-7, CMA
Roll, R. (1977), “A Critique of the Asset Pricing Theory's Tests' Part I: On Past and Potential Testability of the Theory,” Journal of Financial Economics
Rosenberg, B., K. Reid and R. Lanstein (1985) “Persuasive Evidence of Market inefficiency,” Journal of Portfolio Management
Ross, S. A. (1976), “The Arbitrage Theory of Capital Asset Pricing,” Journal of Economic Theory.
Sharpe, W. F. (1964), “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk” Journal of Finance.
Singh A. (1993) “The Stock-Market and Economic Development: should developing countries Encourage Stock-Markets?” UNCTAD Review
Statman, M. (1987) “How many stocks a diversified Portfolio?” Journal of Financial and Quantitative Analysis 22, Sept, pp.353-363
Stattman, D. (1980) “Book Values and Stock Returns,” The Chicago MBA; A Journal of Selected Papers 4, 25-45
Tobin, James. (1958), “Liquidity Preference as Behavior toward Risk,” Review of Economic Studies.