Episode Details

In today’s class, we started by looking at implied equity risk premiums, why they move over time and how they are related to the prices of risk in other risky asset classes (bond and real estate). We then reviewed the pitfalls of regression betas. They are backward-looking, noisy and subject to game playing. We went on to talk about bottom up betas, focusing on defining comparable firms and expanding the sample. I did make a big deal about bottom up betas, but may have still not convinced you or left you hazy about some of the details. If so, I thought it might be simpler to just send you a document that I put together on the top ten questions that you may have or get asked about bottom up betas. I think it covers pretty much all of the mechanics of the estimation process, but I am sure that I have missed a few things.
http://www.stern.nyu.edu/~adamodar/New_Home_Page/TenQs/TenQsBottomupBetas.htm

Start of the class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/RiskShort.pdf
Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valspr24/session6slides.pdf
Post class test:
https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session6test.pdf
Post class test solution: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session6soln.pdf

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