llustrate illiquidity risk and small cap premium
My investment bank told me that beta given by Bloomberg incorporates the illiquidity risk and small cap premium since Bloomberg does well-known Bloomberg adjustment formula. Is it true?
Expert
No. The well-known “Bloomberg adjustment formula” is an arbitrary adjustment within order to converge computed betas to 1 and contains multiplying the calculated beta with 0.67 and adding 0.33 to this. Adj. Beta = 0.67 x raw beta + 0.33. This is significant to point out that such adjustment is fully arbitrary.
An investment bank computed my WACC. The report is as: “the definition of the WACC is defined as WACC = RF + βu (RM – RF); here RF being the risk-free rate and βu the unleveraged beta and RM the market risk rate.” It is differ from what we
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