Using Duff & Phelps report
The Duff & Phelps Risk Premium Report 2011
Using the 2011 Duff & Phelps Report:
Learn from the Master
Roger Grabowski, ASA
Duff & Phelps
Questions@BVResources.com
© 2011 Business Valuation Resources, LLC
Disclaimer
Any opinions presented in this seminar are those of Roger J. Grabowski and do not represent the official position of Duff & Phelps, LLC. This material is offered for educational purposes with the understanding that neither the author or Duff & Phelps, LLC are not engaged in rendering legal, accounting or any other professional service through presentation of this material.
The information presented in this seminar has been obtained with the greatest of care from sources believed to be reliable, but is not guaranteed to be complete, accurate or timely. The author and Duff &
Phelps LLC expressly disclaim any liability, including incidental or consequential damages, arising from the use of this material or any errors or omissions that may be contained in it.
2
Questions@BVResources.com
© 2011 Business Valuation Resources, LLC
The Duff & Phelps Risk
Premium Report 2011
© 2011, Business Valuation Resources
The Duff & Phelps Risk Premium Report 2011
The Size Effect
• Empirical evidence suggests that investments in small capitalization
(small market value) companies have earned greater historical rates of return than investments in large capitalization companies over the long-term. • Empirical evidence suggests that CAPM (beta - adjusted return) tends to underestimate historical rates of return on small companies
(i.e., beta -adjusted return too low)
• SBBI Yearbook has documented this effect:
– Size-based (where size is measured by market value) premiums over return predicted using textbook CAPM
– Based on 10 size (where size is measured by market value) deciles • Correction to textbook CAPM: add premium to the return predicted by the textbook CAPM to adjust expected return for smaller
companies.
Using the 2011 Duff & Phelps Report:
Learn from the Master
Roger Grabowski, ASA
Duff & Phelps
Questions@BVResources.com
© 2011 Business Valuation Resources, LLC
Disclaimer
Any opinions presented in this seminar are those of Roger J. Grabowski and do not represent the official position of Duff & Phelps, LLC. This material is offered for educational purposes with the understanding that neither the author or Duff & Phelps, LLC are not engaged in rendering legal, accounting or any other professional service through presentation of this material.
The information presented in this seminar has been obtained with the greatest of care from sources believed to be reliable, but is not guaranteed to be complete, accurate or timely. The author and Duff &
Phelps LLC expressly disclaim any liability, including incidental or consequential damages, arising from the use of this material or any errors or omissions that may be contained in it.
2
Questions@BVResources.com
© 2011 Business Valuation Resources, LLC
The Duff & Phelps Risk
Premium Report 2011
© 2011, Business Valuation Resources
The Duff & Phelps Risk Premium Report 2011
The Size Effect
• Empirical evidence suggests that investments in small capitalization
(small market value) companies have earned greater historical rates of return than investments in large capitalization companies over the long-term. • Empirical evidence suggests that CAPM (beta - adjusted return) tends to underestimate historical rates of return on small companies
(i.e., beta -adjusted return too low)
• SBBI Yearbook has documented this effect:
– Size-based (where size is measured by market value) premiums over return predicted using textbook CAPM
– Based on 10 size (where size is measured by market value) deciles • Correction to textbook CAPM: add premium to the return predicted by the textbook CAPM to adjust expected return for smaller
companies.