How an idiosyncratic (zero-beta) risk can greatly increase the firm’s cost of capital

The celebrated capital asset pricing model (‘CAPM’) brought numerous appealing insights and spawned a new theory of capital budgeting. One key intuition is that there is ‘no penalty for diversifiable risk’ – that is, any risky payoff that has zero-correlation with the wider economy, and hence zero-beta, is treated as ‘risk-free’. Does that mean that managers can bet the firm on a spin of the roulette wheel without attracting a higher CAPM discount rate? Our re-interpretation of CAPM reveals that potential financial losses which are conventionally regarded as firm-specific ‘unpriced’ risks can bring a large increase in the firm’s beta and CAPM cost of capital, despite having zero-beta and making only negligible difference at the aggregate market level. This mathematical result clashes with textbook expositions but is easily demonstrated and can be traced to authoritative but overlooked parts of the theoretical CAPM literature. JEL Classification: G11, G12

Linearity extensions of the market model: a case of the top 10 cryptocurrency prices during the pre-COVID-19 and COVID-19 periods

This research investigates the appropriateness of the linear specification of the market model for modeling and forecasting the cryptocurrency prices during the pre-COVID-19 and COVID-19 periods. Two extensions are offered to compare the performance of the linear specification of the market model (LMM), which allows for the measurement of the cryptocurrency price beta risk. The first is the generalized additive model, which permits flexibility in the rigid shape of the linearity of the LMM. The second is the time-varying linearity specification of the LMM (Tv-LMM), which is based on the state space model form via the Kalman filter, allowing for the measurement of the time-varying beta risk of the cryptocurrency price. The analysis is performed using daily data from both time periods on the top 10 cryptocurrencies by adjusted market capitalization, using the Crypto Currency Index 30 (CCI30) as a market proxy and 1-day and 7-day forward predictions. Such a comparison of cryptocurrency prices has yet to be undertaken in the literature. The empirical findings favor the Tv-LMM, which outperforms the others in terms of modeling and forecasting performance. This result suggests that the relationship between each cryptocurrency price and the CCI30 index should be locally instead of globally linear, especially during the COVID-19 period.

Comparing Patients´ Emotional Experience In Icu with General Wards: A Case Control Study

Background Comparing emotional experiences between patients in ICU and general wards, exploring aspects of patients' relationships with healthcare staff using the Patient Evaluation of Emotional Care during Hospitalisation (PEECH) questionnaire. Methods A project to humanise the ICU had previously been undertaken, heeding the recommendations set out in the Humanisation in Intensive Care Units Best Practices. Based on a preliminary study, an alpha risk of 0.05 and a beta risk of 0.20 was obtained in a two-tailed test. 252 general patients and 252 ICU patients needed to detect a difference equal to or greater than 0.2 units on the PEECH scale. A common standard deviation of 0.8 units was used. 513 questionnaires were collected, 253 from ICU and 260 from patients on general wards. Results Significantly higher scores were achieved by the ICU on sub-scales level of security 2.83 in ICU v. 2.62 on general wards (p < 0.001); level of personal value 2.79 v. 2.57 (p < 0.001); level of knowing 2.64 v. 2.55 (p = 0.035). Not significative differences were found on sub-scale level of connection with mean score of 1.66 v. 1.46 (p = 0.033). Conclusion Significant differences were found on all sub-scales, with the ICU scoring higher than the general wards. On the contrary, no shortcomings were identified for level of security, level of knowing in the care process or level of personal value. The level of connection with staff was not perceived in terms of continuous and coordinated care. Efforts should be made for patients to know the staff caring for them, especially in short stays.

The Lithium Industry and Analysis of the Beta Term Structure of Oil Companies

According to a statement made in the BP Energy Outlook report in 2017, most of the world’s liquid fuel (petroleum) is being consumed by the transportation industry. The mechanisms used to stimulate changes in the energy markets are affected by government policies that act in more ambitious ways than purely market-driven forces; different governments have promoted incentives involving electric mobility, especially in urban areas. The substitution for crude oil by renewable energy inputs in the transport sector is a major concern for oil producers. Among the different types of clean energies, lithium (Li) is currently assuming an increasingly strategic role. The goals of this paper are two-fold: First, we study the dynamics of the lithium industry and then the beta risk behavior of the 10 largest oil companies in the world for the time period between 11 February 2008 and 10 January 2019. We use an approach based on the continuous wavelet transform (CWT) method. The results indicate that there is a period of dependence between late 2013 and 2016 that occurs in the long-run frequencies of between 32 and 198 days for all cases, except for in the case of PetroChina, thereby demonstrating that the beta term is time-varying. We also find evidence that the beta term reflects and advances oil companies’ responsiveness to movements in the lithium market. In the second part of the paper, we study the dynamics of the beta series by using long-run dependence approaches. The results indicate that the betas are highly persistent, with the order of integration found to be significantly above 1 in all cases.

Valuation of Start-Up Company Using Real and Financial Assets Rate of Return

The objective of this research is to analyse and describe the valuation of start-up company using the Discounted Cash Flow Analysis. There are several combination of discount rates, including combination of beta, risk free rate and market return. There are several market returns applied in the calculation of the discount rate, such as gold price, crude oil, property price index and IDX composite. The object of research is PT. XYZ, which is a start-up company engaged in the field of software (System & Mobile Application). The results showed that PT. XYZ is a start-up that has a systematic risk (Beta) of 5.1 point, which is lower than the average beta of hi-tech start-up companies. The fair value of PT. XYZ is Rp 3,729,416,128,911. Using a confidence level of 95%, the deviation of company’s value is between Rp102,726,286,407 and Rp7,356,105,971,415. It is concluded that valuing the start-up using real and financial asset return as a benchmark will provide high fair value. The reason is the return in those assets are lower because of lower risk. The lower rate of return will make the value of the start-up company higher. Therefore, investors will request the start-up company to provide higher value.

ANALISIS CAPITAL ASSET PRICING MODEL (CAPM) DALAM MEMPREDIKSI TINGKAT RETURN SAHAM KOMPAS 100 YANG TERDAFTAR DI BURSA EFEK INDONESIA (BEI) PERIODE 2013-2017

This study is to determine the accuracy of the CAPM model in predicting 100 compass stock returns listed on the Indonesia Stock Exchange for the period 2013-2017. The variables of this study are 100 stock compass returns, Beta, Risk-Free, and Market return. The accuracy of the CAPM model is measured by standard deviation and t-test. The population of this research is all the monthly stock returns of the compass 100 stock index have gone public on the Indonesia Stock Exchange. While the sample used is a monthly stock return of 58 compass 100 companies from 2013 - 2017. The results of this study indicate that the CAPM model is accurate in predicting 100 stock compass returns.

How do firm and market characteristics affect airports’ Beta risk?

I present a graphical framework based on Subrahmanyam and Thomadakis (1980) that allows to study the impact from firm and market characteristics on systematic risk associated with the return on capital, i.e. Beta risk, for utilities under price control. Within this framework, Beta risk is driven by the magnitude of profit fluctuations following demand shocks. The framework is then applied to airport firm characteristics and airport market environment features. I find that the frequency of price control resets, the level of operating leverage, the extent of capacity constraints, and the degree of market power all have an unambiguous effect on the level of Beta risk. The scope of the regulatory perimeter and the type of traffic mix may also affect Beta risk; however, the magnitude and direction of their impact rely on the specifics of the case. The article may assist policy makers to formulate economically sound recommendations on how the regulatory rate of return for airport operators should be determined. Specifically, my findings suggest criteria that can be used to choose adequate peer companies of comparable systematic risk.

Which is Determining in the Fluctuation of Stock Market Risk of Entertainment Compagnies in Viet Nam: Financial and Economic Crisis or Low Inflation Rate?

Our paper aims to investigate empirically how much rise or reduce in the market risk of entertainment companies in Viet Nam. We use a sample composed of 8 companies listed in the stock exchange market in Viet Nam (Hanoi Stock Exchange and Ho Chi Minh Stock Exchange) during two periods; post-low inflation from 2015 to 2017 and financial and economic crisis during the period from 2007 to 2009. We utilize an analytic investigation technique based on a comparative assessment approach mixed through quantifiable data assessment. From the empirical findings, we show that the risk point assessed by the used measure suggest in the entertainment business is appropriate, i.e. it is small inferior than one. Next, one of its most important conclusions is the divergence among risk rank of hotel manufacturing through the financial and economic recession from 2007 to 2009 matched to those in the period of post-low inflation level from 2015 to 2017. Furthermore, the investigation conclusions demonstrate us market risk volatility, assessed by asset and equity beta risk, through the period of post-low inflation level has reduced marginally. Also, this study gives several suggestions that might support firms and authority other indication in instituting their strategies concerning control and governance. It is the complicated assignment; however, the study findings indicate us cautioning that the marketplace risk fluctuation may be greater through the period of post-low inflation level from 2015 to 2017. Finally, we can find that discovering new prospective markets and credit and funding strategies are amongst instructions for leisure firms.

Efficacy of imiquimod in the management of lentigo maligna.

10074 Background: Lentigo maligna (LM), a melanocytic proliferation occurring on photoexposed skin, might progress to LM melanoma. Surgery is recommended as first-line treatment. However, the main challenge is the size of the excision inducing often-aesthetic injuries on the face and thus often refused by patients. The excision margins of 5 to 10 mm remain without international consensus. Several studies have shown that imiquimod induced LM regression, acting by enhancing IFN-γ production and effector function of T cells. The main goal of this study is to investigate the effect of imiquimod versus placebo in neoadjuvant setting to decrease the excision size as from the first surgical procedure. Methods: We performed a prospective, randomized, open, multicenter, phase III clinical study (NCT01720407). The health authority and ethics committee approvals were obtained and all subjects signed an informed consent. The primary endpoint was to demonstrate that in neoadjuvant situation, imiquimod could reduce the surgical excision size of LM with a healthy tissue margin of 5 mm. The main inclusion criteria were: Patients > 18 years fit for surgery. LM of the head histologically confirmed and not previously treated. Surface lesion ≥ to 1cm² and ≤ to 20cm². The two treatment arms were imiquimod or placebo followed by LM excision. Imiquimod or placebo were applied once daily, 5 days/week for 4 weeks followed by 5 mm margin surgery performed four weeks after the last treatment application. For sample size, 268 patients were expected to demonstrate a difference of 15% between the two arms in a bilateral situation with an alpha risk of 5% and a beta risk of 20%. Results: The trial involved 273 patients, 238 (105 men (44%) and 133 women (56%), mean age of 71 ± 10.2 years, were analyzed in modified ITT. Statistical analysis was performed on 122 patients in the imiquimod arm and 116 patients in the placebo arm. For the primary endpoint, the first extralesionnal excision has been achieved for 112 (91.8%) patients in the imiquimod arm and for 98 (84.5%) placebo patients group. There was no significant difference (p value = 0.1067) between the two arms. However, regarding the surface of LM, imiquimod allowed a highly significant reduction (4.2 cm² ± 4.6 to 2.3 cm² ± 3.3) compared to LM treated by placebo (4.0 cm² ± 3.5 to 4.0 cm² ±3.3; p < 0.0001). Conclusions: This randomized prospective study shows that imiquimod reduces the LM area (-50%) after one month of treatment. Reducing the surface of LM with imiquimod is not associated with a higher risk of intralesional excision (marge 5mm), with a significant esthetic result (less excised surface). Clinical trial information: NCT01720407.

Beta and Coskewness Pricing: Perspective from Probability Weighting

The security market line is often flat or downward-sloping. We hypothesize that probability weighting plays a role and that one ought to differentiate between periods in which agents overweight extreme events and those in which they underweight them. Overweighting inflates the probability of extremely bad events and demands greater compensation for beta risk. Underweighting has the opposite effect. Overall, these two effects offset each other, resulting in a flat or slightly negative return--beta relationship. Similarly, overweighting the tails enhances the negative relationship between return and coskewness, whereas underweighting reduces it. We support our theory through an extensive empirical study.