Equity Volatility Size Adjustments by Industry
This article provides a means for determining equity volatility size adjustments in estimating lookback equity volatilities for eleven different industry sectors based on twenty years of historical data. The industry-specific size adjustments can be used for estimating volatility for common equity in privately-held or illiquid publicly traded companies. Consistent with an earlier article, I find that size adjustments vary significantly among industries, but I also find relatively minor differences for any given industry based on ...
The Impact of Size and Leverage on Equity Volatility
Many valuation practitioners rely on equity volatilities when performing equity allocations, derivative valuations, discounts for lack of marketability, or contingent consideration analyses. Yet in contrast to other commonly accepted valuation adjustments, practitioners still appear hesitant to adjust historical or implied volatilities from publicly traded comparables for differences in size when performing these types of analyses, despite theory that these factors should impact equity volatility. Instead, preference is usually made in the industry to adjust equity ...
Size-adjusting Volatility
Since the valuation of corporate securities with option-like features issued by the private companies requires an estimate of volatility based upon comparable public companies and the comparable companies are often larger, the use of unadjusted volatilities may understate the volatility of the subject private company. This article provides an up-to-date research review on the need for size-adjusting volatility. We also present a simple methodology to size adjust comparable companies that is easily updated with data ...