While analysts generally agree that a discount for lack of liquidity (DLOL) is an important component of asset-pricing, they haven’t had an empirically based tool for indicating its range and variability—until now. Beginning with the November 2007 issue, the Business Valuation Update™ will feature the “Abbott Liquidity Factor.” This new measure is derived from a liquidity database developed by Dr. Ashok Abbott (Business Valuation, LLC), which tracks directly observable data for common stocks of publicly traded securities from the primary national exchanges (NYSE, AMEX, and NASDAQ). The Liquidity Factor is calculated on a lagged basis beginning when the month’s end outstanding shares and trading volume data become available for the component stocks.
The Abbott Liquidity Factor is the first indicator to help quantify this material, but rapidly changing discount, reflecting block size, asset size, trading speed and costs. Analysts may expect larger DLOL during periods of higher volatility, for example, but the Liquidity Factor shows the impact can be much larger—and more volatile—than many would predict from the historic S&P 500 Index. The ranges in the BVU identify the level of small-stock liquidity and resulting discounts specific to block size and the valuation period. For a more complete discussion, click here for the BVU article, including the back page portion displaying the current Abbott Factor. Also: If you’re attending the ASA BV Conference in San Diego next week, be sure to catch Dr. Abbott’s session on Discounts and Premiums, or stop by the BVR booth for more information. ASA-goers will also have a copy of the November BVU in their tote bags.
Conference update: We hear from ASA planners that the San Diego fires have not affected and do not threaten the airport or the conference venues. All conference activities will go forward as scheduled. We do send our best wishes for all in the California communities affected by the wild fires, and our hopes for speedy containment. For current information on impacted areas, visit www.sandiego.org (click on “San Diego Wildfire Updates”).
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