The CAPM model was built by William Sharpe in the 1960s and published in 1970 in the book\nPortfolio Theory and Capital Markets. In recognition of his work, he was awarded the 1990\nNobel Prize in Economics. The Capital Asset Pricing Model (CAPM) is an important analytical\ntool in determining the expected return of a potential investor from investing in an entity's\nstock that directly seeks to strike a balance between the return on a particular asset and its\nassociated risk. This fact has contributed to this model being at the heart of corporate finance\nand investment analysis. The model is based on the view that all stock investments are\ninherently risky investments, and in the standard CAPM equation, a distinction is made\nbetween two types of common stock investment risk, non-systemic and systemic risk. The\naim of the research is to indicate that when making foreign investors' decisions about\ninvesting in SEE countries, the standard equation of the CAPM model is not sufficient, as these\ncountries are exposed to numerous risk factors. Therefore, in the continuation of the work,\nthe authors will present, on a practical example of these countries, its modification for the\ncountry risk premium, which will enable foreign investors to understand the risk complex\nand specificity of investing in the shares of SEE issuers. Investors also expect higher returns\non securities, as a compensation for the risks of investing in these countries, which also causes\nthe cost of capital costs to rise in growing markets. The difference in yield that reflects a\ncountry's risk is called the country's risk premium, which will be detailed in the paper.
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