In response to last week’s article entitled, “Reduced liquidity may lead to larger marketability discounts in the current economy,” (BVWire, Issue 73-1), Ronald M. Seaman, FASA (Southland Business Group, Tampa, FL) offers the following comments in a letter to the editor regarding Lance Hall’s contention that during periods of increased volatility, investors desire an increased ability to sell, so “it makes sense that cash flows might decrease in an analysis, and discounts might also increase,”: “I suspect that Lance Hall is correct. However, the question can be answered easily by an analysis of the costs of LEAPS Put Options. The costs of LEAPS put options are an excellent proxy for the discount for lack of marketability because the costs of LEAPS include most of the Mandelbaum factors and are obviously market-based. Because LEAPS are valuation-date specific and industry specific, the question about reduced liquidity can easily be answered by a study of their costs on whatever beginning and ending dates one chooses and for whatever industries or companies one chooses.”
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