The equity risk premium in the MENA region -

Abstract

The equity risk premium is one of the most important numbers in finance; its estimation is still however widely discussed. In the MENA region, the topic is even more complex given the lack of data, lack of transparency, illiquidity, and other challenges. This paper starts by a general definition for the equity risk premium with the various understanding of the topic. The second chapter presents all the calculation and estimation methodologies for the equity risk premium used internationally. The third chapter is dedicated to methodologies specifically built or used in emerging markets. For the fourth chapter, I examined equity research reports and established contact with equity analysts to have an idea about what practitioners are using for the MENA region, the methods are presented under chapter four while the numbers are presented under chapter 5. Additionally, in chapter 5, I presented the equity risk premium for the region as reported by Damodaran, Fernanderz, Bloomberg, and Deutsche Bank. Given the strengths and weaknesses of each of the methods reports under chapter one and two, I chose three methods and applied them to the MENA region under chapter six. As expected, the results for all three methods were greatly deceiving and inapplicable.