scholarly journals METHODOLOGICAL APPROACHES TO THE DISCOUNTING RATE CHOICE IN FORENSIC ECONOMICS RESEARCH

2021 ◽  
Author(s):  
T. Paientko ◽  
M. Rudaia
Keyword(s):  
Discount Rate ◽  
Expected Returns ◽  
Capital Asset Pricing ◽  
Global Risk ◽  
Risk Premiums ◽  
Local Risk ◽  
Methodological Approaches ◽  
Risk Free Rate ◽  
Free Rate

The article summarizes the methodological approaches to the choice of discount rate. The purpose of the article is to substantiate methodological approaches to the selection of the discount rate concerning the examination related to the recognition of assets and liabilities requiring discounted valuations in the financial statements. The practical application of the discount rate methodology is explored. One of the most important models for estimating expected returns on securities portfolios, equity and the basis for setting risk premiums and discount rates is the Capital Asset Pricing Model (CAPM). In spite of the fact that the mandatory use of the model in Ukraine is absent at legislative level, the correctness of its application is confirmed by long-term business practice worldwide. It has been determined, that in order to protect the position of legal experts in the preparation of opinions related to local risk-free rate for evaluation of the discount rate determination it is suggested to use global risk-free rate with the appropriate adjustments. The algorithm for calculating the discount rate on the model of capital assets cost, which is possible to apply in the current realities of Ukraine, is substantiated.

scholarly journals Ownership structure, agency costs, and discount rates

2007 ◽  
Vol 4 (3) ◽  
pp. 240-246 ◽  
Author(s):  
C. R. Krishna-Swamy ◽  
Mary M. Pashley
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Discount Rate ◽  
Ownership Structure ◽  
Agency Costs ◽  
Capital Asset Pricing ◽  
Discount Rates ◽  
Risk Free Rate ◽  
The Impact ◽  
Free Rate

In this paper, we explore the effects of agency costs on discount rates for public sector enterprises as well as private sector enterprises. Ownership structure has a direct impact on agency costs, and discount rates. We show this through an application of the Capital Asset Pricing Model (CAPM) framework. With the addition of agency costs, the discount rate, under uncertainty, for public sector enterprises (PSEs) as well as private sector enterprises (PVTSEs) becomes a variation of the CAPM risk adjusted discount rate plus a premium for agency costs. In some circumstances the impact of agency costs “cancels out,” otherwise it remains a relevant input to the calculation of required rates of return. For PSEs, under risk neutrality, the discount rate is the risk-free rate plus a premium for agency costs

RISK-FREE RATES AND ANIMAL SPIRITS IN FINANCIAL MARKETS

2016 ◽  
Vol 11 (03) ◽  
pp. 1650011 ◽  
Author(s):  
JUKKA ILOMÄKI
Keyword(s):  
Financial Markets ◽  
Expected Returns ◽  
Risk Averse ◽  
Animal Spirits ◽  
Local Risk ◽  
Global Stock Markets ◽  
Animal Spirit ◽  
Risk Free Rate ◽  
Global Stock ◽  
Free Rate

We show analytically that animal spirit excess profits for uninformed investors fall (increase) when the risk-free rate rises (falls). In the theoretical analysis, we examine the expected returns of risk-averse, short-lived investors. In addition, we find empirically that the local risk-free rates explain 14% of the changes in the animal spirit excess profits in the global stock markets for the last 29 years when the animal spirits is characterized as a product of the trend-chasing rule.

scholarly journals CONNECTING THEORY AND EMPIRICS FOR ANIMAL SPIRITS, RETURNS AND INTEREST RATES: A CLARIFICATION OF “RISK-FREE RATES AND ANIMAL SPIRITS IN FINANCIAL MARKETS”

2017 ◽  
Vol 12 (01) ◽  
pp. 1750002 ◽  
Author(s):  
JUKKA ILOMÄKI
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Expected Returns ◽  
Animal Spirits ◽  
Empirical Results ◽  
Upper Limit ◽  
Risk Free Rate ◽  
Free Rate

I clarify and combine the results of Ilomäki (2016a) and Ilomäki (2016b) and find several interesting conclusions. First, the effect of the animal spirits component to the expected returns of investors depends on the risk-free rate. Second, there must be an upper limit for the risk-free rate, where the component that reduces the expected returns of informed investors in Ilomäki (2016a) disappears. Third, the empirical results of Ilomäki (2016b) indicates that the break-even level is as low as 3%.

scholarly journals An Empirical Modelling of New Zealand Hospitality and Tourism Stock Returns

2013 ◽  
Vol 2013 ◽  
pp. 1-10 ◽  
Author(s):  
Christine Lim ◽  
Felix Chan
Keyword(s):  
New Zealand ◽  
Stock Returns ◽  
Money Supply ◽  
Discount Rate ◽  
Expected Returns ◽  
Tourism Demand ◽  
Expected Return ◽  
Risk Premiums ◽  
Term Premium ◽  
Unit Increase

This paper examines the factor risk premiums of stock returns for the hospitality and tourism companies in New Zealand. The Arbitrage Pricing Theory (APT) approach is used to investigate the expected return for stock portfolio with respect to market, macro (i.e., money supply and discount rate), and tourism factor sensitivities. Monthly stock prices, market index, tourism, and macroeconomic data are used in the study. The results indicate that the risk premiums for international tourism demand and term premium (proxy for discount rate) are positively significant at the 5% level. A one unit increase in tourist arrival sensitivity would result in expected return increase of 10 to 17 percentage point. Similarly, a one unit increase in term premium can increase hospitality-tourism expected returns by 0.2 percentage point. However, the findings for the money supply factor are not significant. As the study shows that investors face high positive tourism demand risk, it is imperative for firms and policymakers in New Zealand to promote inbound tourism through effective marketing and management. This in turn can provide high expected returns and create shareholder value for investors.

scholarly journals PROBLEMS OF CONFIRMATION OF THE AMOUNTS OF INCOME AND EXPENSES THAT ARISE IN ACCOUNTING FOR LONG-TERM DEBT

2020 ◽  
pp. 534-541
Author(s):  
T. Paientko
Keyword(s):  
Income Tax ◽  
Effective Rate ◽  
Review Of The Literature ◽  
Unified Approach ◽  
The Past ◽  
Risk Free Rate ◽  
Standard Operations ◽  
Free Rate

The article is devoted to solving the problematic issues of confirming the amounts of income and expenses that arise in accounting for long-term debt. A review of the literature has shown that domestic researchers do not pay enough attention to the method of determining the effective rate in various situations. It is incorrect to use the approaches of western researchers in determining the effective rate, as in Ukraine there is no unified approach for determining a risk-free rate. The purpose of the article is to justify the approaches to determining the effective interest rate when accounting for long-term debt in order to reflect correctly income and expenses arising from the discount calculation. Over the past few years, during tax audits, tax inspectors do not recognize or recognize income and expenses of income taxpayers that arise from the reflection of the discount in an incomplete amount. As a result, the taxpayers have income tax arrears, the amounts of which they do not agree with, and therefore they must go to court. The issue of confirmation of the amount of income or expenses arising as a result of reflection of the discount is controversial and complicated, therefore often requires the involvement of a forensic expert economist. In practice, there are nonstandard situations, namely: reflection in the accounting of long-term debt with an uncertain maturity; – reflection in the accounting of interest-free financial aid; reflection in the accounting of non-standard loans. It has been determined that the source of the problem is the lack of common approaches to justify the effective rate used in discounting. The court practice of settling disputes between taxpayers and the tax service has been analyzed. It is grounded, in what non-standard operations problems can arise in determining the effective rate. It is determined what approaches to the determination of discount rate should be applied in the realities of Ukraine. It has been substantiated that in order to protect the position of judicial experts when preparing opinions on the issues of reflection of income and costs arising from the discount, it is necessary to develop and approve the methodology for determining the effective rate for calculating the discount.

Project Valuation: Price Forecasts Bound to Discount Rates

2021 ◽  
Author(s):  
Babak Jafarizadeh ◽  
Reidar B. Bratvold
Keyword(s):  
Cash Flows ◽  
Capital Asset Pricing ◽  
Discount Rates ◽  
Capital Asset ◽  
Risk Premiums ◽  
Asset Pricing Model ◽  
Project Valuation ◽  
Hurdle Rate ◽  
Future Cash Flows

For their appraisals, most companies use discount rates that account for timing and riskiness of projects. Yet, especially for commodity projects, discounting future cash flows is generally at odds with the assumptions in a company’s hurdle rate. With a multitude of technical and market uncertainties, inconsistent assessments lead to biased valuations and poor investment decisions. In this paper, we consider price forecasts and discount rates in an integrated framework. We calibrate the risk premiums in a two-factor stochastic price process with a capital asset pricing model-based discount rate. Together with the analysts’ long-term prices forecasts, the suggested method improves consistency in valuation and decision making.

Rich Pickings? Risk, Return, and Skill in Household Wealth

2020 ◽  
Vol 110 (9) ◽  
pp. 2703-2747 ◽  
Author(s):  
Laurent Bach ◽  
Laurent E. Calvet ◽  
Paolo Sodini
Keyword(s):  
Idiosyncratic Risk ◽  
Household Wealth ◽  
Expected Return ◽  
Cross Sectional ◽  
Balance Sheets ◽  
Net Worth ◽  
Average Return ◽  
Risk Free Rate ◽  
Free Rate

We investigate wealth returns on an administrative panel containing the disaggregated balance sheets of Swedish residents. The expected return on household net wealth is strongly persistent, determined primarily by systematic risk, and increasing in net worth, exceeding the risk-free rate by the size of the equity premium for households in the top 0.01 percent. Idiosyncratic risk is transitory but generates substantial long-term dispersion in returns in top brackets. Systematic and idiosyncratic risk both drive the cross-sectional distribution of the geometric average return over a generation. Furthermore, wealth returns explain most of the historical increase in top wealth shares. (JEL D31, G11, G51)

scholarly journals Empirical Testing of Capital Asset Pricing Model on Bahrain Bourse

2015 ◽  
Vol 7 (2) ◽  
pp. 107 ◽  
Author(s):  
Iqbal Thonse Hawaldar
Keyword(s):  
Rate Of Return ◽  
Standard Theory ◽  
Capital Asset Pricing ◽  
Test Results ◽  
Market Returns ◽  
Portfolio Returns ◽  
Capm Model ◽  
Risk Free Rate ◽  
The Relationship ◽  
Free Rate

<p>The study is undertaken to find out the relationship between portfolio returns and market returns and test the empirical validity of the standard CAPM model on Bahrain Bourse. The study is based on 39 companies listed in the Bahrain Bourse, Bahrain All Share Index as market proxy and yield of Government of Bahrain securities as risk free rate of return. The study covers period from January 1, 2011 to December 31, 2014.  The analysis of the results of the study revealed that many of the independent variables together with beta can explain the portfolio returns.  However, the intercept test reveals that the portfolio returns are equal to the risk-free rate of return. Therefore, we can conclude that the results of intercept test of standard CAPM proves the theory and the beta test results goes against the standard theory.  </p>

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