Effect of Liquidity on Size Premium and its Implications for Financial Valuations

摘要: Courts are often required to determine a stock's "fair value," which by definition excludes any reduction value because of lack liquidity. The method computing fair most frequently used practitioners is the discounted cash flow analysis, requires calculating cost equity. Over last decade, many have included size premium in computation equity based on finding that historic returns for firms with lower market capitalization greater than implied standard capital asset pricing model. Our findings show substantial fraction measurement premiums reflects liquidity, disproportionately affects smaller sized companies. Because from illiquidity should not be reflected value, this has implications assessments employ commonly premiums. Specifically, our suggest valuations small stocks reflect these will cause underestimated effect size, underestimation value.