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More About This Title 2015 International Valuation Handbook
English
The New Standard Source of International Cost of Capital Analysis
The 2015 International Valuation Handbook – Guide to Cost of Capital provides data and methodology guidance that will enable the reader to assess risk and develop cost of capital estimates on a global scale, coupled with data exhibits that provide country-level country risk premia (CRPs), Relative Volatility (RV) factors, and equity risk premia (ERPs). The data exhibits can be used to estimate country-level cost of equity capital globally, for up to 188 countries, from the perspective of investors based in up to 55 different countries.*
The 2015 International Valuation Handbook – Guide to Cost of Capital is published in June 2015, with data through December 2014 and March 2015. The optional September Semi-annual Update is also available, with data through June 2015 and September 2015.
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Key Features
Country-level Country Risk Premia (CRPs) for up to 188 countries: The 2015 International Valuation Handbook – Guide to Cost of Capital provides country-level country risk premia for up to 188 countries globally, from the perspective of investors based in up to 55 different countries. CRPs are estimated using the following models: (i) Country Credit Rating Model, and (ii) Country Yield Spread Model. Relative Volatility (RV) Factors for up to 69 countries: The 2015 International Valuation Handbook – Guide to Cost of Capital provides country-level relative volatility factors for up to 69 countries from the perspective of investors in the U.S. and Germany. Relative volatility factors are estimated using the Relative Standard Deviation Model. Equity Risk Premia (ERPs) for 18 countries based in USD and “local” currency: The 2015 International Valuation Handbook – Guide to Cost of Capital provides long-horizon and short-horizon ERP data in USD and “local” currencies. Additional ERP resources include Pablo Fernandez’ survey of ERPs for a variety of counties.*Depending on the estimation model being employed, and data availability. Some models do not include estimates for all countries.
The Semi-annual update is (i) optional, and (ii) not sold separately. The Semi-annual Update is delivered in PDF format only.
English
Acknowledgements ix
Introduction x
Who Should Use the 2015 International Valuation Handbook – Guide to Cost of Capital x
New and Notable xi
About the International Valuation Handbook – Guide to Cost of Capital xii
ERPs, CRPs, and RVs are Different, and are Properly Used Differently xvi
Risk Premia Over the Risk-free Rate and Risk Premia over CAPM (i.e., size premia) Measure Different Types of Risks xvi
Chapter 1 International Cost of Capital – Overview 1-1
Cost of Capital Defined 1-1
Are Country Risks Real? 1-2
Risks Typically Associated with International Investment 1-5
Does the Currency Used to Project Cash Flows Impact the Discount Rate? 1-10
Summary 1-10
Chapter 2 Strengths and Weaknesses of Commonly Used Models 2-1
World (or Global) CAPM 2-1
Globally Nested CAPM 2-4
Single-country Version of the CAPM 2-5
Damodaran’s Local Country Risk Exposure Model 2-6
Alternative Risk Measures (downside risk) 2-7
What Model Should I Use? 2-12
Chapter 3 International Equity Risk Premia 3-1
Description of Data 3-1
Methodology 3-3
Description of Data Series Used 3-7
Currency Translation 3-16
How to Use the International ERP Tables 3-18
Appendix 3A: Additional Sources of International ERP Data 3A-1
Dimson, Marsh, and Staunton Equity Risk Premia Data 3A-1
Pablo Fernandez Equity Risk Premia and Risk-free Rate Surveys 3A-6
Chapter 4 Country Yield Spread Model 4-1
Introduction 4-1
Brief Background on Euromoney’s ECR Score 4-2
Investor Perspectives 4-3
Country Yield Spread Model 4-4
Methodology – Country Yield Spread Model 4-6
Using Country Yield Spread Model CRPs to Estimate Base Country-level Cost of Equity Capital 4-9
Using Country Yield Spread Model CRPs to Estimate Cost of Equity Capital for Use in Evaluating a Subject Business, Asset, or Project 4-11
Chapter 5 Relative Volatility Model 5-1
Relative Volatility Model 5-1
Investor Perspectives 5-2
Methodology – Relative Volatility Model 5-3
Using Relative Volatility Model RV Factors to Estimate Base Country-level Cost of Equity Capital 5-5
Using Relative Volatility Model RV Factors to Estimate Cost of Equity Capital for Use in Evaluating a Subject Business, Asset, or Project 5-7
Chapter 6 Erb-Harvey-Viskanta Country Credit Rating Model 6-1
A Notable Difference with Previous Reports: Country Risk Premia (CRPs) 6-2
Data Sources 6-3
The CCR Model 6-5
Different Investor Perspectives 6-6
Global Cost of Equity Capital – High-level Comparisons 6-8
Presentation of Cost of Capital Data 6-14
Country Risk Premia (CRP) Defined 6-15
How CRPs are Calculated 6-15
Using CCR Model CRPs to Estimate Base Country-level Cost of Equity Capital 6-17
Using CCR Model CRPs to Estimate Cost of Equity Capital for Use in Evaluating a Subject Business, Asset, or Project 6-20
Chapter 7 Firm Size and the Cost of Equity Capital in Europe 7-1
Differences in Returns Between Large and Small Companies in Europe 7-1
Countries Included 7-2
Data Sources 7-2
Regional Differences 7-3
Two Types of Risk Premia Examined 7-5
Conclusion 7-10
Data Exhibit 1: International Equity Risk Premia (ERPs)
Data Exhibit 2: Country Yield Spread Model: Country Risk Premia (CRPs)
Data Exhibit 3: Relative Volatility Model: Relative Volatility (RV) Factors
Data Exhibit 4: Erb-Harvey-Viskanta Country Credit Rating Model: Country Risk Premia (CRPs)
Data Exhibit 5: Study of Differences in Returns Between Large and Small Companies in Europe
