Year-end 2019 data, including risk-free rates, industry risk premia, equity risk premia, and size premia, are now available in BVR’s Cost of Capital Professional platform. The platform gives you the flexibility to choose the start year for historical return data based on what segment of history you believe best offers a reasonable basis to make estimates of expected future returns.
Analysts might start with:
- The earliest year of data available, presumably with the belief that the future will resemble the average return of many past decades (over 90 years, if starting in the 1920s);
- The year 1963 because that is the first full year that Compustat started its database;
- The year 1982, the first year after the size effect in stock returns was first documented (other empirical research shows the size premium in listed firms has changed since it was first documented); or
- Whatever starting date the analyst feels is most appropriate.
How does the Cost of Capital Professional compare with the Duff & Phelps Cost of Capital Navigator? Last fall, the two platforms went head-to-head for the first time and produced similar results. Of course, the two platforms have different attributes and some analysts use both.
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