Musings on Markets

JANUARY 10, 2025

Thus, as you peruse my historical data on implied equity risk premiums or PE ratios for the S&P 500 over time, you may be tempted to compute averages and use them in your investment strategies, or use my industry averages for debt ratios and pricing multiples as the target for every company in the peer group, but you should hold back.

Risk Premium 120

Risk Premium Dividends Start-ups Corporate Finance 120

Musings on Markets

APRIL 7, 2025

In the language of risk, they are demanding higher prices for risk, translating into higher risk premiums. Those equity risk premiums did not get back to pre-2008 levels until almost 15 years later.

Marketability 93

Marketability Risk Premium Start-ups Equity 93

Musings on Markets

FEBRUARY 8, 2025

In the first five posts, I have looked at the macro numbers that drive global markets, from interest rates to risk premiums, but it is not my preferred habitat. The second set of inputs are prices of risk, in both the equity and debt markets, with the former measured by equity risk premiums , and the latter by default spreads.

Risk Premium 75

Risk Premium Beta Start-ups Equity 75

Harvard Corporate Governance

AUGUST 11, 2023

If a large shareholder or a group of investors becomes concerned with the firm’s operations and management, and takes legal steps to assert their claims, it may affect a firm’s outlook, competitive position, its risk premium, and hence discounted value.

Risk Premium 189

Risk Premium Corporate Finance Marketability Finance 189

Musings on Markets

SEPTEMBER 27, 2022

In a third post on July 1, 2022 , I pointed to inflation as a key culprit in the retreat of risk capital, i.e., capital invested in the riskiest segments of every market, and presented evidence of the impact on risk premiums (bond default spreads and equity risk premiums) in markets.

Risk Premium 99

Risk Premium Treasury Start-ups Equity 99

Musings on Markets

FEBRUARY 11, 2023

In this section, I will begin measures of country default risk, including sovereign ratings and CDS spreads, before moving to more expansive measures of country risk before concluding with measures of equity risk premiums for countries, a pre-requisite for estimating the values of companies with operations in those countries.

Risk Premium 97

Risk Premium Start-ups Equity Marketability 97

Musings on Markets

FEBRUARY 8, 2022

Relative Risk Measures Before we embark on how to measure relative risk, where there can be substantial disagreement, let me start with a statement on which there should be agreement. By the same token, Embraer and TCS are global firms that happen to be incorporated in Brazil and India, respectively.

Risk Premium 93

Risk Premium Beta Start-ups Equity 93

Musings on Markets

MAY 6, 2022

Equity Risk Premium Path : The equity risk premium of 5.24%, estimated at the start of May 2022, is at the high end of historical equity risk premiums , but we have seen higher premiums, either in crises (end of 2008, first quarter of 2020) or when inflation has been high (the late 1970s).

Risk Premium 103

Risk Premium Treasury Start-ups Equity 103

Musings on Markets

JANUARY 17, 2024

To capture the market's mood, I back out the expected return (and equity risk premium) that investors are pricing in, through an implied equity risk premium: Put simply, the expected return is an internal rate of return derived from the pricing of stocks, and the expected cash flows from holding them, and is akin to a yield to maturity on bonds.

Risk Premium 82

Risk Premium Start-ups Equity Dividends 82

Musings on Markets

JANUARY 20, 2021

Note that nothing that I have said so far is premised on modern portfolio theory, or any academic view of risk premiums. It is true that economists have researched risk aversion for centuries and concluded that investors are collectively risk averse, and that the level of risk aversion varies across age groups, income levels and time.

Risk Premium 52

Risk Premium Risk-free Rate Equity Dividends 52

Musings on Markets

OCTOBER 4, 2023

Price of Risk The drop in stock and bond prices in the third quarter of 2023 can partly be attributed to rising interest rates, but how much of that drop is due to the price of risk changing? below the index value of 4288, confirming my base case conclusion.

Marketability 123

Marketability Start-ups Risk Premium Treasury 123

Musings on Markets

JULY 17, 2023

Exacerbating the pain, corporate default spreads rose during the course of 2022: While default spreads rose across ratings classes, the rise was much more pronounced for the lowest ratings classes, part of a bigger story about risk capital that spilled across markets and asset classes.

Marketability 98

Marketability Risk Premium Start-ups Treasury 98

BV Specialists

AUGUST 12, 2024

For example, in business valuation, the multiples and risk premiums relied upon under the market and income approaches may vary considerably depending on the specific company and industry involved.

Risk Premium 102

Risk Premium Appraisal Business Valuation Marketability 102

Musings on Markets

AUGUST 15, 2023

Expected returns for Risky Investments : The risk-free rate becomes the base on which you build to estimate expected returns on all other investments. For instance, if you read my last post on equity risk premiums , I described the equity risk premium as the additional return you would demand, over and above the risk free rate.

Risk-free Rate 98

Risk-free Rate Risk Premium Treasury Start-ups 98

LaPorte

OCTOBER 9, 2023

(authored by RSM US LLP) For the first time in years, the risk premium has been positive, which is an important signal that interest rates are indeed returning to normal. The post The great rate reset: The end of easy money, rising yields and the onset of a new era first appeared on LaPorte.

Risk Premium 52

Risk Premium 52

Valutico

FEBRUARY 27, 2024

Capital Asset Pricing Model (CAPM): According to CAPM, the expected return on a stock has two main components: the risk-free rate and a risk premium. The risk-free rate represents the return an investor can get without taking on any risk, typically derived from government bonds.

Discounted Cash Flow 52

Discounted Cash Flow Risk Premium Risk-free Rate Beta 52

Andrew Stolz

AUGUST 5, 2020

If an investor moves money from the risk-free asset into the stock market, they should expect to earn a return in excess of the risk-free rate, what is called an equity risk premium. These risks can be reduced through the diversification of a portfolio. How Do You Calculate the Capital Asset Pricing Model?

Risk-free Rate 52

Risk-free Rate Beta Weighted Average Cost of Capital Risk Premium 52

ThomsonReuters

MAY 6, 2021

The adjustment added to the risk-free rate to arrive at the risk-adjusted rate is often referred to as the “risk premium.” The risk premium reflects that market participants require compensation for taking on uncertainty. The risk premium may incorporate factors such as credit risk or market illiquidity.

Discounted Cash Flow 52

Discounted Cash Flow Risk-free Rate Risk Premium Intangible Assets 52

Andrew Stolz

AUGUST 6, 2020

The return on assets is determined by systematic factors such as changes in inflation , risk premiums, interest rates, etc. Investors construct portfolios with unsystematic risks, which are well-diversified to reduce total portfolio risk. In theory, arbitrage provides investors with a high chance of success. 1 + RP1 + ??2+

Risk-free Rate 52

Risk-free Rate Risk Premium Beta Marketability 52

Musings on Markets

JANUARY 5, 2024

Beta & Risk 1. Equity Risk Premiums 2. I also have implied equity risk premiums (forward-looking and dynamic estimate of what investors are pricing stocks to earn in the future) for the S&P 500 going back annually to 1960 and monthly to 2008, and equity risk premiums for countries. Buybacks 2.

Dividends 107

Dividends Risk Premium Equity Book Value 107

Musings on Markets

JANUARY 30, 2023

Just as rising equity risk premiums push up the cost of equity, rising default spreads push up the cost of debt of companies, with the added complication of higher default risk for those companies that had pushed to the limits of their borrowing capacity in a low interest-rate environment.

Treasury 97

Treasury Start-ups Risk Premium Equity 97

Equilest

JANUARY 7, 2025

A high M-Score could indicate higher risk, warranting a higher discount rate and thus a lower valuation. Using our sliding scale, we might apply a 10% discount to the valuation:$100 million - (10% $100 million) = $90 millionThis adjusted valuation reflects the increased risk associated with potential earnings manipulation.

Business Valuation 40

Business Valuation Risk Premium Finance Start-ups 40

Equilest

JANUARY 3, 2023

And the factor loading for country risk might be 0.1, meaning that 10% of the stock's risk is specific to the country in which the company is based. Next, we need to estimate the risk-free rate and the risk premium for each risk factor. x 5%) + (0.2 x 4%) + (0.1 x 5%) + (0.2 x 4%) + (0.1

Risk Premium 40

Risk Premium Risk-free Rate Market Risk Finance 40

Musings on Markets

FEBRUARY 10, 2021

The answer, to me, seems to be obviously yes, though there are still some who argue otherwise, usually with the argument that country risk can be diversified away. In that post, I computed the equity risk premium for the S&P 500 at the start of 2021 to be 4.72%, using a forward-looking, dynamic measure. as mature markets.

Risk-free Rate 52

Risk-free Rate Risk Premium Start-ups Equity 52

Peak Business Valuation

NOVEMBER 24, 2024

At Peak , these factors help us determine the company-specific risk premium. Customer Concentration: Having customers who make up a large part of revenue risks the company losing a large part of its revenue. Understanding these for an HVAC litigation valuation is paramount.

Business Valuation 52

Business Valuation Fair Market Value Appraisal Discounted Cash Flow 52

Musings on Markets

JANUARY 24, 2024

In my last data update, I measured the price of risk in the equity market in the form on an implied equity risk premium, and chronicled how it rose sharply in 2022 and dropped in 2023, paralleling the movements in default spreads.

Treasury 52

Treasury Risk Premium Start-ups Risk-free Rate 52

Musings on Markets

JANUARY 6, 2023

When valuing or analyzing a company, I find myself looking for and using macro data (risk premiums, default spreads, tax rates) and industry-level data on profitability, risk and leverage. I do report on a few market-wide data items especially on risk premiums for both equity and debt. Debt breakdown 2.

Risk Premium 52

Risk Premium Dividends Start-ups EBITDA 52

Reynolds Holding

OCTOBER 22, 2024

Our study also indicates that market awareness of these issues is growing, as seen in the higher risk premiums demanded by loan investors when these relationships are perceived to compromise the integrity of loan agreements. This lack of demand often forces lead banks to offer loans at higher interest rates or with greater discounts.

Equity 45

Equity Risk Premium Banking Private Equity Firm 45

Global Finance

MARCH 5, 2025

The main attraction of full dollarization is the elimination of the risk of a sudden, sharp devaluation of the countrys exchange rate, the IMF writers point out. This may allow the country to reduce the risk premium attached to its international borrowing.

Banking 59

Banking Finance Risk Premium Marketability 59

Musings on Markets

JANUARY 9, 2021

The macro variables that I track on my site relate to the price of risk, a key input into valuation, in both equity and debt markets: US Equity Risk Premiums : The equity risk premium is the price of risk in equity markets.

Risk Premium 52

Risk Premium Market Capitalization Equity Start-ups 52

ThomsonReuters

APRIL 7, 2021

When submitting financials as part of your loan package, consider accompanying them with voluntary disclosures similar to the ones that public companies provide about non-GAAP financial measures, and in the MD&A and risk factor sections of their SEC filings.

Risk Premium 71

Risk Premium Business Valuation Equity 71

Musings on Markets

JANUARY 27, 2022

Corporate Bonds: No Shortage of Risk Capital In my last post, I chronicled the movement in the equity risk premium, i.e. the price of risk in the equity market, during 2021, but the bond market has its own, and more measurable, price of risk in the form of corporate default spreads.

Risk-free Rate 99

Risk-free Rate Treasury Price to Book Start-ups 99

Equilest

APRIL 11, 2023

With limited features and formulas, it can be difficult to account for all the necessary parameters in a valuation, such as interest rates, equity risk premiums, and beta. It lacks interest rates, equity risk premiums, beta, and other important data.

Business Valuation 40

Business Valuation Beta Risk Premium Discounted Cash Flow 40

Valutico

DECEMBER 12, 2023

We’ve added a ‘date picker’ across key resources sections, allowing you to examine risk-free rates, corporate tax rates, market risk premium, and country ratings across any historic date you select. Resources Section Date Improvement: What? Explore this feature in the Resources section. Why Important?

Risk-free Rate 52

Risk-free Rate Risk Premium Market Risk Marketability 52

Simply Treasury

AUGUST 2, 2022

The definition of "net equity" is as follows: equity of the company = sum of subscribed capital, share premiums, revaluation reserves, reserves and retained earnings, minus the tax value of the company's holdings in associated companies and the tax value of its own shares. risk premium if the company is an SME as defined by European law).

Equity 52

Equity Risk Premium Banking Finance 52

Musings on Markets

JANUARY 26, 2023

As I noted in my last post , rising risk free rates and equity risk premiums have pushed up the costs of equity for all companies, and Tesla is not only no exception but is perhaps even more exposed as an above-average risk company.

Start-ups 99

Start-ups Marketability Risk Premium Equity 99

Musings on Markets

MAY 24, 2021

Risk Premiums and Failure Risk : By itself, inflation has no direct effect on equity risk premiums, but it remains true that higher levels of inflation are associated with more uncertainty about future inflation. Consequently, as inflation increases, equity risk premiums will tend to increase.

Treasury 56

Treasury Start-ups Risk Premium Price to Book 56