Preqin and Pitchbook data are classified and analyzed to derive a coherent set of risk-return assumptions to combine with Listed liquid assets in a traditional mean-variance framework. We find expected returns of 11%-12% for PE and 8% for PD, PC detailed per subclass. Risk is decomposed in Class...

This paper examines to what extent stock market anomalies are driven by firm fundamentals in an investment-based asset pricing framework. Using Bayesian Markov Chain Monte Carlo (MCMC), we estimate a two-capital q-model to match firm-level stock returns, instead of matching portfolio-level...

We evaluate the influence of measurement error in analysts' forecasts on the accuracy of implied cost of capital estimates from various implementations of the ‘implied cost of capital' approach, and develop corrections for the measurement error. We document predictable error in the implied...

To value shares there are two usual methods that, if properly applied, provide the same value: 1/ Present value of expected free cash flows (FCF) discounted with the WACC rate and then, subtract the value of debt; and 2/ Present value of expected equity cash flows (ECF) discounted with the Ke...

This paper elaborates the DCF theory behind the PEG based valuation adopted by some market practitioners and shows why the model is theoretically flawed. The PEG Model of valuation averts the problems associated with the conventional DCF Models like need for terminal value assumptions which...

Firm managers of defined-benefit (DB) pension plan sponsors reveal their primary motives — risk-shifting or risk-management — through their assumed expected rates of return (ERRs) on the plan assets. Managers with risk-shifting motives choose high ERRs to exploit flexible internal financing...

This paper is intended as a guide to building insurance risk (loss) models. A typical model for insurance risk, the so-called collective risk model, treats the aggregate loss as having a compound distribution with two main components: one characterizing the arrival of claims and another...

We present an easily implemented, fast, and accurate method for approximating extreme quantiles of compound loss distributions (frequency and severity) as are commonly used in insurance and operational risk capital models. The Interpolated Single Loss Approximation (ISLA) of Opdyke (2014) is...

This study presents a core-periphery model to determine the optimal size of the European Stability Mechanism (ESM), building on Jeanne and Ranciere (2011). While the periphery is subject to a probability of losing access to external credit, the core's incentive for setting up an ESM stems...