SUMMARY OF MODELS TO CALCULATE RETURN:
MULTI-FACTOR MODEL OR APT:
r(equity) = rf + beta*equity risk premium + beta*size premium + beta*HML premium
PASTOR-STAMBAUGH MODEL :
Multifactor with same purpose as above, adding a liquidity risk premium
BUILD-UP MODEL:
r(equity) = rf + equity risk premium + size premium + hml premium
(note that the build-up models dont have beta (factor sensitivity) in the models while multi-factor does)
BOND YIELD PLUS RISK PREMIUM METHOD:
Uses YTM on LONG TERM Debt of the company and a premium for equity
BURMEISTER, ROLL & ROSS MODEL/ MACRO-ECONOMIC MODELS:
Inputs include Confidence risk, Time horizon risk, Inflation risk, Business cycle risk, Market timing risk and sensitivity coefficients for each of the risks (i.e., Beta)