Abstract
The determination of
market risk premium is often a problem for academics and practioners when
applying Capital Asset Pricing Model (CAPM). This study intends to measure the
market risk premiums (MRP) in the sectors of Borsa Istanbul. The monthly data
are extracted from Reuters Database for the period of 2016-2021 for the
seventeen sectors of Borsa Istanbul. The whole sampling period is devided into
two sub-periods based upon the results of Cusum-Squared test statistics showing
a structural break with the Covid-19. The emprical results reveal that the
market risk premium on BIST100 is -0.7% with a volatility of 0.3% in the
pre-Covid-19 period while the market risk premium on BIST100 is -0.21% with a
volatlity of 0.23% post-Covid-19 period. The findings show that a significant
increase in market risk premiums and volatilies post-Covid-19 era compared to
the pre-Covid era. More, the market risk premiums and their volatilies are
estimated by utilizing ARIMA model for the 2022-2024 period. The estimates
point even higher market risk premiums and volatilies in the near future.
