EACVA_EBVM_2_2023_Meitner_Lee_how to directly estimate unlevered betas.pdf (1.56 MB)
Dealing with historical capital structure volatility in valuation: how to directly estimate unlevered betas
Deriving unlevered betas is a standard exercise for valuation professionals when using the Capital Asset Pricing Model (CAPM). In this article we show that the traditional indirect approach (first deriving levered betas, then recalculating them using beta unlevering formulas) can lead to severely wrong results if capital structures are non-stable over time. A better approach is the direct estimation of unlevered betas (first translating each equity return data point into an asset return data point, then running the regression with these „unlevered“ returns). This approach allows to take financial risk properly into account when debt-to-equity ratios are volatile.
History
School
- Loughborough Business School
Published in
The European Business Valuation Magazine (EBVM)Volume
2Issue
3Pages
20 - 26Publisher
EACVA GmbH European Association of Certified Valuators and AnalystsVersion
- VoR (Version of Record)
Rights holder
© EBVMPublisher statement
This paper appears here with the permission of the publisher.Publication date
2023-09-30Copyright date
2023ISSN
2940-8849Publisher version
Language
- en