New paper on IBOR reform and valuation
For many years, interbank-offered rates (IBORs) have set the benchmark rate for lending on an unsecured basis.
Damodaran updates cost of capital data
Professor Aswath Damodaran (New York University Stern School of Business) has started his annual posting of data updates on his website that include risk-free rates, equity risk premiums, corporate default spreads, corporate tax rates, country risk premiums, and other data—all of which is free.
YE2020 data are now in the Cost of Capital Professional
Year-end 2020 data, including equity risk premia, CRSP decile size premia, and industry betas/IRPs, are now available in BVR’s Cost of Capital Professional platform.
New Research Paper Joins Call to ‘Let Go’ of the Size Premium
A look at the latest paper that joins mounting academic research over the recent past that shows that the size effect no longer exists—or was never there in the first place.
Hitchner poll reveals COEC sources of choice
The January 2021 issue of Hardball With Hitchner includes the results of polls that reveal what sources valuation practitioners use for developing cost of equity capital (COEC) estimates.
Business Valuation Update Yearbook, 2021 Edition
January 2021 Hardcover, PDF
BVR (editor)
Business Valuation Resources, LLC
Vanguard stock market forecast implies a U.S. ERP of 3% to 5%
Annual returns of U.S. stocks over the next decade are forecasted to be in the “modest 3.7%-5.7% range,” according to a recent market outlook report from Vanguard.
D&P reduces recommended U.S. ERP to 5.5%
Duff & Phelps has decreased its recommended U.S. equity risk premium (ERP) from 6.0% to 5.5% for use as of Dec. 9, 2020, according to a client alert.
D&P enhances infographic on cost of capital
Duff & Phelps has updated its infographic, “Cost of Capital in the Current Environment,” and has enhanced it with new data on the eurozone.
The Absence of a Size Effect: Letting Go Of The Size Premium
Many valuation practitioners believe that there is a size effect and add a size premium to their CAPM cost of equity. In this talk, Cliff Ang will demonstrate why the underlying premise behind the size effect no longer holds and discuss the academic literature and empirical evidence on the absence of a size effect. He then dives into the related issue, which is why valuation practitioners should let go of the size premium.
‘The “Normalized” Risk-Free Rate: Fiction or Science Fiction?’
That’s the title of a new paper from Pablo Fernandez, a professor in the department of financial management at the University of Navarra—IESE Business School in Spain.
Article says the size effect didn’t vanish—it never existed
The hits keep coming to the existence of the size effect.
What’s the current UK market risk premium?
Finding—and supporting—a precise cost of capital for UK valuations presents many challenges, but a thoughtful analyses by Reuters at least provides some context.
Latest paper in the size-effect debate
Some appraisers believe that the size effect has diminished or disappeared since it was first documented in 1981.
Global BV News: New module added to Duff & Phelps Cost of Capital Navigator
A new international industry benchmarking module will be available in late October for the Duff & Phelps Cost of Capital Navigator.
Duff & Phelps Cost of Capital Navigator adds international industry benchmarking module
The new international industry benchmarking module (available in late October) provides subscribers with comprehensive global industry-level statistics for approximately 90 industries in four global regions, with data to support valuation dates from March 2015 to the present.
D&P offers infographic on cost of capital amid COVID-19
Which financial market and economic indicators did Duff & Phelps take into consideration when it arrives at its recommended U.S. equity risk premium and accompanying normalized risk-free rate?
The Market Price of Risk: Quantifying a COVID-19 Equity Risk Premium Using High-Yield Bond Pricing
The authors demonstrate how a high-yield option-adjusted spread is used when doing appraisals of private companies while considering the market volatility and economic slowdown caused by the COVID-19 pandemic.
D&P lowers U.S. normalized risk-free rate to 2.5%
Duff & Phelps has decreased its recommended U.S. normalized risk-free rate from 3.0% to 2.5% for use as of June 30, 2020, according to a client alert.
Using a size premium could trigger Daubert trouble, says new article
Adding a size premium to the cost of equity could make an expert’s testimony subject to a Daubert challenge, says Clifford Ang (Compass Lexicon) in a recent article.
More concern about the validity of the size premium factor
Most business valuers consider a size premium when calculating cost of capital for financial reporting purposes.
New business valuation resource from Professor Fernandez captures low market returns
Pablo Fernandez continues to release research that may assist UK business valuers working on reports with valuation dates in Q1 2020.
SOS: Pepperdine Private Capital Markets Project needs funding
Some appraisers feel that using public market data when estimating the cost of capital for a private company requires too many assumptions and adjustments to convert data from actively traded stocks into proxies for private-company valuation.
EU risk-free rate declines, and the market risk premium increases to 9.0%
A special edition (fifth) of the “European Capital Market Study” from ValueTrust was released last week.
Duff & Phelps raises US ERP from 5.0% to 6.0% for 1Q valuation dates
D&P has increased its recommended U.S. equity risk premium (ERP) from 5.0% to 6.0% for use as of 25 March 2020.