Valuing Illiquid Equity Securities in Light of the Financial Crisis of 2007-2009

Journal of Applied Finance, Vol. 20, No. 1, pp. 110-126, 2010

Pace University Finance Research Paper No. 2011/08

Posted: 3 Nov 2011

See all articles by Niso Abuaf

Niso Abuaf

Pace University - Lubin School of Business; Samuel A. Ramirez & Co., Inc.

Multiple version iconThere are 3 versions of this paper

Date Written: August 2, 2010

Abstract

Though practitioners and academics rely on similar conceptual frameworks when valuing illiquid equity securities, they emphasize different aspects of the framework. In contrast to academics, practitioners emphasize market multiples, implied equity market risk premiums, industry betas, and market sentiment; while deemphasizing delevering and relevering betas, debt betas, and historical equity market risk premiums. Moreover, experienced practitioners and the courts prefer a holistic approach to valuation ensuring that inputs such as discount rates, cash flows, and terminal value multiples are consistent with underlying economic fundamentals -- a point that has been driven home during the recent crisis.

Keywords: Securities, Stocks, Liquidity (Economics), Financial Crises, Stock Exchanges, Discount, Cash Flow

Suggested Citation

Abuaf, Niso, Valuing Illiquid Equity Securities in Light of the Financial Crisis of 2007-2009 (August 2, 2010). Journal of Applied Finance, Vol. 20, No. 1, pp. 110-126, 2010; Pace University Finance Research Paper No. 2011/08. Available at SSRN: https://ssrn.com/abstract=1652491

Niso Abuaf (Contact Author)

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Samuel A. Ramirez & Co., Inc. ( email )

61 Broadway
New York, NY 10006
United States

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