Applying black- Scholes model to breakdown beta: growth options and the risk of beta miscalculation
Publish place: Iranian Journal of Finance، Vol: 3، Issue: 4
Publish Year: 1398
نوع سند: مقاله ژورنالی
زبان: English
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شناسه ملی سند علمی:
JR_IJFIFSA-3-4_001
تاریخ نمایه سازی: 24 فروردین 1401
Abstract:
When evaluating companies and investment plans, most analysts use a discount rate that is derived from CAPM models. The beta in these models usually represent risks and opportunities of the relative industry, with almost no attention to the risks that are already included in the beta. This ignorance in risk measurement could ultimately impair shareholders value. What makes things critical is that by adjusting risks and opportunities in beta, the result of investment plans and company valuation could be much different. In this paper we use ۱ to ۱۰ years of monthly return data for all industries of Tehran Stock Exchange and Iran Fara Bourse and suggest an adjusted beta for each industry which is stripped of the dazzling effects of the debts and growth opportunities. We separately account for breaking down beta into beta of growth opportunities and beta of existing assets for each industry in various timelines between ۱ to ۱۰ years. Our results showed that the beta of growth opportunities is bigger than the beta of assets for almost all industries. The mentioned betas can make a big difference in cost of capital and we suggest using them when evaluating investment plans, development plans, valuation of companies and even start-ups.
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Authors
Amin Babaei Falah
Ph.D. Candidate, Department of Financial Management, Science and Research Branch, Islamic Azad University, Tehran, Iran.
Maryam Khalili Araghi
Assistant Prof., Department of Business Management, Science and Research Branch, Islamic Azad University, Tehran, Iran.
Hashem Nikoomaram
Prof., Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran.
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