A Simple Method for Estimating the Marketability Discount of Large Blocks of Shares

Author(s):

Enrique Schroth

 et al.
Topic:
Finance

An inherent difficulty in estimating the value of large blocks of shares is the need to account for their limited marketability. To date, there are no estimates of the marketability discount that explicitly take into account the illiquidity of the market for corporate control. In this article, results from previous work by the authors are used to produce a simple method to estimate the marketability discount under different firm, industry and macroeconomic scenarios. This method is applicable to public firms that have non-traded controlling blocks of shares, as well as fully private firms, and it helps investors determine what discounts to apply on top of the more traditional valuation methods (multiples based methods, DCF analysis).

Updated: 31/12/2014
Comments: 13
Views: 5,531

Strategic Default and Equity Risk Across Countries

When a firm is in financial distress, its shareholders and debt holders may benefit from a debt renegotiation to avoid an inefficient bankruptcy or liquidation. The prospect of a debt reduction through a renegotiation may, however, induce shareholders to default even if the firm is solvent. The view that shareholders may default for strategic rather than for solvency reasons has proved useful in understanding, among other things, the theoretical determinants of corporate bond spreads, dividend policies, the optimal debt structure, and the valuation of debt and equity.

This paper asks whether the option of shareholders to default strategically on the firm's debt explains differences in firms' equity risk across countries. It claims that the risk of equity should be lower for firms that operate in countries where the insolvency procedure favours debt renegotiations

Updated: 28/12/2014
Comments: 9
Views: 2,881

Differences in beliefs and currency risk premia

Author(s):

Alessandro Beber

 et al.
Topic:
Finance

Standard asset pricing theories have difficulty explaining episodes that are not simply linked to fundamentals. Notable examples in the dynamics of capital markets are the equity premium puzzle or the excess volatility puzzle.

These puzzles have motivated an increasingly large literature over the last couple of decades that explores the general equilibrium implications of uncertainty for asset prices.This paper studies the importance of heterogeneous beliefs for the dynamics of asset prices.

Updated: 14/01/2013
Comments:
Views: 4,172

Risk management issues in European equity funds

Author(s):

Natasa Todorovic

 et al.
Topic:
Finance

The 2008 financial crisis highlighted the lack of effective risk management in the asset management industry. There was a lack of transparency and feasibility in the quantitative tools used to compute the value and risk management for the exotic credit derivatives products. Clearly, risk management was not well understood or used properly by financial companies that operated in this turbulent environment.

This paper provides a comprehensive analysis of current risk management practices of active European equity long-only funds and hedge funds.

Updated: 26/11/2014
Comments: 4
Views: 5,511

Are positive reactions to bad news plausible? The consideration of fraud in audit and reporting delays

Author(s):

Andrew Yim

Topic:
Finance

In June 2009 came the news of the alleged fraud in Countrywide Financial, one of the largest mortgage loan providers in the US before the credit crunch hit. The allegation against Countrywide reminded people of an unfulfilled role of auditors in the financial market: fraud detection.

Considering previous literature, the majority of which focuses on accounting fraud, this paper focuses on the misappropriation of assets and draws a range of conclusions.

Updated: 14/01/2013
Comments:
Views: 4,679

Monetary policy, asset prices and actuarial practice

Author(s):

Philip Booth


The operation of monetary policy may have an impact on securities markets and asset values. This is of relevance to many in the actuarial industry, particularly to actuaries who work in non-bank financial institutions such as pension funds and insurance companies.

This review paper presents mainstream theories of monetary policy and draws out the implications that are regarded as most important for actuaries and actuarial research.

Updated: 14/01/2013
Comments:
Views: 4,143

What does equity sector orderflow tell us about the economy?

Investors rebalance their portfolios as their views about expected returns and risk change.

In this study empirical measures of portfolio rebalancing were used to back out investors' views, specifically their views about the state of the economy.

Contrary to many theories of price formation, did trading activity therefore contain information that that is not entirely revealed by resulting relative price changes?

Updated: 28/12/2014
Comments: 37
Views: 4,940

Short-Selling Bans around the World: Evidence from the 2007-09 Crisis

Author(s):

Alessandro Beber

Topic:
Finance

Most regulators around the world reacted to the 2007-09 crisis by imposing bans or constraints on short-selling. These were imposed and lifted at different dates in different countries, often applied to different sets of stocks and featured varying degrees of stringency. This 2011 article by Professor Alessandro Beber explores the ban on short-selling to identify their effects on liquidity, price discovery and stock prices.

Updated: 18/12/2014
Comments: 2
Views: 4,796

Value averaging and the automated bias of performance measures

Value averaging is a formula investment strategy which can be shown to achieve a lower average cost and higher IRR than alternative strategies.

Updated: 15/12/2014
Comments: 20
Views: 4,301