( ISSN 2277 - 9809 (online) ISSN 2348 - 9359 (Print) ) New DOI : 10.32804/IRJMSH

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EMPIRICAL STUDY OF COST OF EQUITY IN INDIAN COMMERCIAL BANKS -A CAPM APPROACH

    1 Author(s):  DR.CHITRA GOUNDER

Vol -  10, Issue- 3 ,         Page(s) : 49 - 57  (2019 ) DOI : https://doi.org/10.32804/IRJMSH

Abstract

This paper examines the cost of equity for major banks in India, both public and private sector banks were covered over the period 2001 – 2015. Cost of equity is estimated based on single-factor Capital Asset Pricing Model (CAPM). The cost of equity has increased for almost all banks in the study period and most of the banks recorded highest cost of equity in 2008 and a marginal decline in 2009. In case of portfolio cost of equity, public sector and new private sector banks have shown an increasing trend in cost of equity from 2004 to 2008 and declined in 2009. But portfolio of old private sector banks has shown an increasing trend throughout the study period. The rise in cost of equity is mainly associated with rise in the risk free rate and partly due to increase in the sensitivity of bank stock returns to market risk.

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