Application of the Capital Asset Pricing Model (CAMP) to estimate the cost of capital of Russian companies

Subject. The article deals with determining the required return (cost) of equity for Russian companies based on the Capital Asset Pricing Model (CAPM). Objectives. The purpose is to develop an approach to calculating CAPM parameter values considering the company ‘size’ based on data from a local emerging market. Methods. The study employs an extended CAPM model that includes a company ‘size premium’. The beta parameter is estimated using the least squares method over 1-, 2-, and 5-year data intervals with daily, weekly, and monthly data frequencies. To reduce the volatility of beta coefficients obtained through regression analysis, the Vasicek adjustment method is applied. An approach to calculating the company size premium based on Russian stock market data is proposed. Results. I calculated beta coefficients for publicly traded Russian companies listed on the Moscow Exchange for 2015–2024. The paper demonstrates the effectiveness of adjusting historical beta coefficients under the Vasicek method. Furthermore, I calculated the ‘size premium’ values for Russian companies using my own method I developed. Conclusions. The beta coefficient of Russian stocks exhibits high volatility that is characteristic of all emerging markets. This issue can be addressed using the Vasicek adjustment without the significant distortions that arise when applying the Blume adjustment. The ‘size premium’, calculated using the Russian market data, although higher than that observed in global markets, enables a reasonably accurate estimation of the required return on equity for Russian companies within the CAPM framework based on local market data. The proposed approach can be applied both for business valuation and for justifying investment projects of Russian companies.