What is it about?

Does the capital asset pricing model (CAPM) reflects the real risks perceived in doing business in countries in the Middle East and North Africa (MENA)? To explore this question, first, we examine whether the CAPM yields consistent results in calculating the weighted average cost of capital (WACC) as applied by different academic databases, by comparing three different academic databases for 736 listed companies on stock exchanges in the MENA region. Second, we examine whether practitioners use the WACC inputs and calculations consistent with academic databases, through an analysis of 83 companies and in-depth interviews with 8 financial institutions. We also explore adjustments made by practitioners to reflect the real risk they perceive in MENA countries.

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Why is it important?

In conclusion, this article suggests several weaknesses related to using the CAPM methodology to calculate the COE as input into the WACC that goes into the DCF calculation in MENA countries. This is relevant for pactitioners and academics.


This is an interesting topic in which I have been working with students from the DBA program at IE Business School

Laura Nuñez Letamendia
IE Business School, IE University

Read the Original

This page is a summary of: Variations in Valuation Methodologies and the Cost of Capital: Evidence from MENA Countries, Emerging Markets Finance and Trade, January 2019, Taylor & Francis, DOI: 10.1080/1540496x.2018.1533462.
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