El costo de capital en sectores regulados y mercados ... - Esan

Abstract
Since it was first proposed in 1964 the CAPM model has become the most widespread
and used in determining the opportunity cost of capital. However, its usefulness in
emerging countries has been subject to heated debate.
One of the main criticisms aimed at the model is that it can only be used in developed
countries where capital markets operate efficiently. In emerging nations like Peru,
capital markets are insufficiently liquid, negotiation levels are incipient and
transparency deficient. In other words, the elements are lacking to efficiently create
market prices.
Nonetheless, the model’s advantages and simplicity warrant its use. To counter
arguments opposing the use of the CAPM model in determining the cost of capital in
emerging countries, a country risk premium must be added to the cost of capital
determined using the traditional method.
This document presents three methods for computing the cost of capital for regulated
industries in emerging markets: i) the expected return using the sectorial beta; ii) the
expected return using public betas for regulated companies; and iii) the expected return
using primary data for regulated companies. This paper also presents the concept of
country risk and the controversies surrounding its definition and estimation. In
addition, it presents the sources and procedures for determining the risk-free rate and
market return. Finally, the paper reviews the use and calculation of betas (as a
measurement of risk) from a CAPM perspective.
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