From Fragmentation to Integration: A Country Risk–Based Estimation of Bosnia and Herzegovina’s Cost of Equity

This study evaluates Bosnia and Herzegovina’s equity market using a country risk premium (CRP) – based valuation framework suited to structurally constrained frontier markets. In conditions of fragmented trading, negligible turnover, and weak price discovery, conventional asset-pricing models offer limited guidance. Augmenting a U.S. base equity risk premium with Bosnia’s sovereign default spread yields an implied cost of equity of approximately 17.6%. Benchmarking against regional peers shows persistent underperformance in market size, liquidity, and valuation. The analysis highlights how fragmentation and institutional constraints sustain a high required return and discusses policy pathways for gradual risk-premium compression.