Does Financial Crisis Affect the Cost of Equity Estimation? Evidence from the Tunisian Stock Exchange

Kouki Mondher, Abderrazek Elkhaldi, Wided Bouani


The aim of this paper is to study the impact of the recent financial crisis on equity cost estimation. We use a data of a 22 firms listed in the Tunisian stock market during the period from July 2006 to June 2011. The choice of this period is motivated by the occurrence of the financial crisis of October 2008, which divides the period into two equal sub-periods. In the first stage, we make abstraction to the crisis impact and we run the three specifications of the cost of equity: the CAPM, the Fama -French three factor model and The Carhart four-factor model. Empirical results confirm the explanatory power of the three specifications in the context of the Tunisian market. We also confirm the existence of a size effect, a book to market effect and a momentum effect. In the second stage, we show that the presence of financial crisis does not affect the cost of equity. However, we note a decrease in the coefficients of the explanatory variable after introducing the dummy crisis variable.

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