The Equity Premium and Risk-Free Rate Puzzles in a Turbulent Economy: Evidence From 105 Years of Data From South Africa

Hassan, Shakill; Biljon, Andrew Van

doi:10.1111/j.1813-6982.2010.01237.x

Cited by 5 publications

(8 citation statements)

References 26 publications

(62 reference statements)

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“…We use the rate on the South African three‐month (91 days) Treasury Bill, which is commonly used as a market‐determined proxy for the domestic short‐term risk‐free rate ( e.g. Fedderke and Pillay, 2010; Hassan and Van Biljon, 2010), obtained from the South African Reserve Bank. The data are weekly, taken on a Monday of each week, covering the period from the 18th of June 1984 to the 18th of July 2011, giving a total of 1,322 observations.…”

Section: Data Policy Environment and Descriptive Statisticsmentioning

confidence: 99%

No‐arbitrage One‐factor Models of the South African Term Structure of Interest Rates

Aling¹,

Hassan

2012

South African J Economics

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Short‐term interest rate processes determine the term structure of interest rates in an arbitrage‐free market and are central to the valuation of interest rate derivatives. We obtain parameter estimates and compare the empirical fit of alternative one‐factor continuous‐time processes for the South African short‐term interest rate (and hence of arbitrage‐free term structure models) using Gaussian estimation methods. We find support only for diffusions where the interest rate volatility is moderately sensitive to the level of the interest rate. Other common models with restrictions that either preclude this effect, or restrict it to be too high, do not fit the data. Differences in the specification of the drift function have no evident effect on model performance.

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Section: Data Policy Environment and Descriptive Statisticsmentioning

confidence: 99%

No‐arbitrage One‐factor Models of the South African Term Structure of Interest Rates

Aling¹,

Hassan

2012

South African J Economics

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“…This excess return is to compensate the investors for taking on the relatively higher risk of the equity market. Hassan and Biljon () illustrate the above table computing geometric and arithmetic means over bond and bills for different investment horizons.…”

Section: Use Of Index‐based Model For Benchmark Rate Of Renewable Enementioning

confidence: 99%

“…However, the country has reasonably developed capital markets where equities and bonds have been traded in the secondary market for a considerable period of time. Hassan and Biljon (2010) examine 105 years of data to determine the equity premium in South Africa. They compute equity premium over bonds and bills for yearly realised premium in 3, 5, 10 and 20 years moving averages.…”

Section: Use Of Index-based Model For Benchmark Rate Of Renewable Enementioning

confidence: 99%

“…It varies 7.7% to 9.3% over bonds and bills. Table 2 presents the equity premium in South Africa as reported by Hassan and Biljon (2010). Geometric averages incorporate compounding effects.…”

Section: Use Of Index-based Model For Benchmark Rate Of Renewable Enementioning

confidence: 99%

“…The twenty-first-century global centres of growth have also shifted, which has important implications for the geographical focus of renewable energy deployment. The "developed countries" are no longer the drivers as "non-OECD countries account for 90% of population growth, 70% of the increase in economic output and 90% of the energy demand growth over the period from 2010-2035" (IEA, 2011. In order to shift from the traditional fossil fuel-based power systems to renewable energy, the underlying local financial drivers must be fully understood if renewable energy such as wind and solar are to play a major role in the provision of electricity in emerging economies.…”

Section: Introductionmentioning

confidence: 99%

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An Index‐Based Model for Determining the Investment Benchmark of Renewable Energy Projects in South Africa

Fay

Kumar

2013

South African J Economics

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In a globalised world, financial markets observe the optimal level of asset allocation and returns based on risk inherent in the economies. Whether public or private investors, they need to have an optimal return on their investment given the finite resources. In relatively new sectors like grid‐connected renewable energy, many investors face difficulty in assessing proper return, making them more averse to financing such projects, affecting transborder project development opportunities. In developing countries like South Africa, which has tremendous potential for renewable energy projects, an arbitrary choice of the required rate of return for project evaluations can negatively affect funding decisions. This paper explores an index‐based model to make fair estimates of the required equity benchmark internal rate of return (IRR) using financial markets observation for renewable energy projects in South Africa. The index‐based model is parsimonious and captures common macroeconomic factors. More specifically, it provides a simple and effective mechanism to calculate IRR for renewable energy projects given different gestation periods.

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Corporate carbon risk, voluntary disclosure, and cost of capital: South African evidence

et al. 2018

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The study examines the interplay among corporate carbon risk, voluntary disclosure, and cost of capital within the context of South Africa, a “rising power” in the climate policy debate. We develop a system of simultaneous equations models and analyze data drawn from firms traded on the Johannesburg Securities Exchange (JSE), for the period 2010 to 2015, using the three‐stage least squares procedure. We find that voluntary carbon disclosure is associated with lower overall (and equity) cost of capital, after controlling for corporate carbon risk. We also find that firms with higher carbon risk tend to provide better quality carbon disclosure and signal the possibility of high carbon risk to avoid negative market reactions resulting from concealing carbon information. Although the capital market does not appear to incorporate individual firm's carbon risk exposure into the required cost of capital, we find that it generally requires higher returns for companies operating in carbon‐intensive sectors. These findings suggest that firms could exploit the virtues of voluntary carbon disclosure to reduce their overall (and equity) cost of capital. Our findings also imply that regulators and policymakers could point to the cost of capital reducing role of voluntary disclosure to lure firms into voluntarily providing superior quality carbon disclosures.

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The Equity Premium and Risk-Free Rate Puzzles in a Turbulent Economy: Evidence From 105 Years of Data From South Africa

Cited by 5 publications

References 26 publications

No‐arbitrage One‐factor Models of the South African Term Structure of Interest Rates

No‐arbitrage One‐factor Models of the South African Term Structure of Interest Rates

An Index‐Based Model for Determining the Investment Benchmark of Renewable Energy Projects in South Africa

Corporate carbon risk, voluntary disclosure, and cost of capital: South African evidence

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