Transcription of Estimating Risk Parameters Aswath Damodaran
{{id}} {{{paragraph}}}
Example: air traffic controller
Estimating Risk Parameters Aswath Damodaran
Estimating Risk ParametersAswath DamodaranStern School of Business44 West Fourth StreetNew York, NY Risk ParametersOver the last three decades, the capital asset pricing model has occupied a central andoften controversial place in most corporate finance analysts tool chests. The modelrequires three inputs to compute expected returns a riskfree rate, a beta for an asset andan expected risk premium for the market portfolio (over and above the riskfree rate).Betas are estimated, by most practitioners, by regressing returns on an asset against astock index, with the slope of the regression being the beta of the asset. In this paper, weattempt to show the flaws in regression betas, especially for companies in emergingmarkets.
five years for beta estimates, with varying results. In fact, using Disney as an example again, we estimated betas for periods ranging from 3 years to 10 years: Time Period Used Beta Estimated 3 years 1.04 5 years 1.13 7 years 1.09 10 years 1.18 In choosing a time period for beta estimation, it is worth noting the trade off involved.
Loading..
Tags:
Information
Domain:
Source:
Link to this page:
Please notify us if you found a problem with this document: