Singer-Terhaar approach

Q5B, p.113, vol 3 Solution says Swiss’ ERP is highest but since this is “compensation for systemmatic risk, we cannot conclude which industry is most attractive from a valuation perspective”. What does that mean? What does “valuation perspective” mean?

What does Singer-Terhaar mean?

well it means what it means, if you have an asset with beta 2 and an asset with beat 1, obviously asset with beta 2 will have higher ERP (Just based on CAPM), it doesnt mean it is more attractive.

pimp Wrote: ------------------------------------------------------- > What does Singer-Terhaar mean? icapm. Rf + beta (rm-rf)

I remember these dudes from somewhere.

Yeahh… these were the guys who extended ICAPM with integrating market inefficiencies, i.e. illiquidity premium and segmentation/integration. This story about developed markets being 85% integrated whereas emerging markets being 60% or something integrated. You first calculate as if they are fully integrated. Then segmented and then take weighted average, also add illiquidity premium,

What does “valuation perspective” mean?

valuation perspective deals with the value of an asset. if you have two assets priced at $1, and $100 each, which one would you purchase? based just on that sentecne, you can’t conlcude as you’re missing information. What you need to know is the assets intrinsic value. so if the first assets’ intrinsic value was $10, and the 2nd assets was $110, which one would you purchase, the one that will rise by $9 or $10? you’ll purchase the first asset. This is a very simple explanation but i hope it helps.