Editorial Type:
Article Category: Research Article
 | 
Online Publication Date: 01 Jan 2013

Total Beta—A Capital Market Analysis with Empirical Evidence

CPA, CVA, and CBA
Page Range: 212 – 226
DOI: 10.5791/BVR-D-13-00004.1
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Abstract

Some authors have postulated that Total Beta (“Tβ”) is an appropriate measure of risk for undiversified investors to use in developing the cost of equity capital for valuing a privately held company. This paper offers a mathematical analysis of Total Beta based upon the Capital Market Theory in the Expected Return-standard deviation framework, reviews the arguments offered by supporters of Total Beta, and challenges their assumptions and logic. The author offers the first direct evidence that refutes these assertions and arguments.

Copyright: American Society of Appraisers
Figure 1
Figure 1

Butler Exhibit E (Updated to 2006)

Figure 2
Figure 2

Discounts from List Prices

Figure 3
Figure 3

Estimated Long-Run Capital Market Line

Figure 4
Figure 4

Short-Term Capital Market Line (12/01/2001–10/02/2006) versus Long-Term

Figure 5
Figure 5

Capital Allocation Line (CAL) of SAM versus Short- and Long-Run CML

Figure 6
Figure 6

Ex-Post versus Ex-Ante Returns of SAM from October 2, 2002, to September 30, 2005 (Four Years)

Contributor Notes

Larry Kasper, CPA, CVA, CBA is a self-employed sole practitioner in Hilliard, Ohio. He holds a B.S.B.A. in economics (The Ohio State University), MBA in Operations Research (University of Michigan) and Master in Accounting (The Ohio State University). He is the author of the award-winning book, Business Valuations: Advanced Topics (Quorum Books) and over 15 journal articles in the fields of taxation, accounting, and finance. Prior to beginning his own practice in 1975, he was employed by the “Big 8” firm of Touche Ross, and as an economist at Dean Witter and the Battelle Memorial Institute.

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