登录查看更多内容

Last updated on 2024年9月20日

How do you benchmark and compare your market risk and liquidity risk adjustments with peers and competitors?

由人工智能和领英社区提供技术支持

Market risk and liquidity risk are two key factors that affect the value of a company and its assets. Market risk is the possibility of losses due to changes in market prices, such as interest rates, exchange rates, or equity prices. Liquidity risk is the risk of not being able to sell or buy an asset quickly enough at a fair price, due to low trading volume or market disruptions. In this article, you will learn how to benchmark and compare your market risk and liquidity risk adjustments with peers and competitors, using some practical methods and tools.

此文章中的业界达人

由社区从 5 条内容中精选。了解更多

Tushar Kore

40+ Clients Served | NISM Series - XV Certified | Investment Banking & Finance Enthusiast | Financial Modeling, MS…

1 Why benchmark and compare?

Benchmarking and comparing your market risk and liquidity risk adjustments with peers and competitors can help you to assess your relative performance, identify areas of improvement, and communicate your value proposition to investors, lenders, and other stakeholders. By using consistent and transparent methods and data sources, you can also enhance your credibility and avoid potential disputes or challenges.

添加您的观点

Tushar Kore

40+ Clients Served | NISM Series - XV Certified | Investment Banking & Finance Enthusiast | Financial Modeling, MS Excel, Analytical Skills, SQL | 1M+ Impressions?? | CMA US Part 2 Candidate
举报内容
Benchmarking your market risk and liquidity risk against similar companies helps you see how well you're doing compared to others in your industry. For example, if you run a tech startup, comparing your cash flow management and how quickly you can sell your products with competitors can highlight strengths and weaknesses. This not only shows you where you can improve but also helps you explain your business's value to investors or banks more clearly. By using reliable data and clear methods, you boost your credibility, making it less likely that you'll face disagreements or challenges about your financial health.

已翻译

赞

2 How to measure market risk?

One of the most common ways to measure market risk is to use the Value at Risk (VaR) method, which estimates the maximum potential loss of a portfolio or an asset over a given time horizon and confidence level, based on historical or simulated data. For example, a 10-day 95% VaR of $1 million means that there is a 5% chance that the portfolio or asset will lose more than $1 million in 10 days. You can compare your VaR with your peers and competitors by using the same time horizon, confidence level, and data source, and by adjusting for any differences in portfolio size, composition, or risk profile.

添加您的观点

Tushar Kore

40+ Clients Served | NISM Series - XV Certified | Investment Banking & Finance Enthusiast | Financial Modeling, MS Excel, Analytical Skills, SQL | 1M+ Impressions?? | CMA US Part 2 Candidate
举报内容
Value at Risk (VaR) is a method used to measure how much money you could potentially lose in an investment over a specific time period, based on past data. For example, if an investment fund has a 30-day 95% VaR of $500,000, it means there’s a 5% chance that the fund could lose more than $500,000 in a month. This tool helps investors understand their risk and compare it to other funds by ensuring they use the same time frame and confidence level, while also considering differences in the types of investments they hold. For instance, if one fund focuses on stable, blue-chip stocks and another on volatile tech startups, the second fund might be at greater risk for larger losses, even if both have the same VaR.

已翻译

赞

3 How to measure liquidity risk?

One of the most common ways to measure liquidity risk is to use the bid-ask spread, which is the difference between the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept for an asset. The bid-ask spread reflects the cost of trading and the availability of buyers and sellers in the market. A higher bid-ask spread indicates a lower liquidity and a higher liquidity risk. You can compare your bid-ask spread with your peers and competitors by using the same asset class, market segment, and time period, and by adjusting for any differences in asset quality, maturity, or volatility.

添加您的观点

Tushar Kore

40+ Clients Served | NISM Series - XV Certified | Investment Banking & Finance Enthusiast | Financial Modeling, MS Excel, Analytical Skills, SQL | 1M+ Impressions?? | CMA US Part 2 Candidate
举报内容
The bid-ask spread is like the gap between what someone is willing to pay for a product and what the seller wants to sell it for. For example, if you want to buy a rare collectible card and the highest price a buyer is offering is $100, but the seller won’t accept less than $120, the bid-ask spread is $20. A larger spread means it’s harder to buy or sell that card quickly without losing money, showing more liquidity risk. To understand how your collectible card is doing compared to others, you can look at similar cards in the same condition and price range, taking into account any differences like how rare or valuable they are.

已翻译

赞

4 How to adjust for market risk?

To adjust for market risk, you need to estimate the required return or discount rate for your portfolio or asset, based on the risk-free rate and the market risk premium. The risk-free rate is the return on a hypothetical investment with no risk, such as a government bond. The market risk premium is the excess return that investors demand for investing in a risky asset, such as a stock or a corporate bond. You can use the Capital Asset Pricing Model (CAPM) or other models to estimate the market risk premium, based on the beta or the sensitivity of your portfolio or asset to the market movements. You can compare your required return or discount rate with your peers and competitors by using the same risk-free rate, market risk premium, and beta, and by adjusting for any differences in leverage, growth, or cash flow.

添加您的观点

Tushar Kore

40+ Clients Served | NISM Series - XV Certified | Investment Banking & Finance Enthusiast | Financial Modeling, MS Excel, Analytical Skills, SQL | 1M+ Impressions?? | CMA US Part 2 Candidate
举报内容
To estimate the return you need from an investment while considering risk, start with the risk-free rate (like a safe government bond return) and add the market risk premium (extra return for risky assets like stocks). You can use the Capital Asset Pricing Model (CAPM) with beta, which measures how sensitive your investment is to market changes. For example, when comparing a tech startup to a stable utility company, you’d use the same risk-free rate and market premium but adjust for their different risk levels, helping you assess if the expected returns are fair.

已翻译

赞

5 How to adjust for liquidity risk?

To adjust for liquidity risk, you need to estimate the liquidity premium or discount for your portfolio or asset, based on the bid-ask spread and the expected holding period. The liquidity premium or discount is the additional return or reduction in value that investors demand or accept for investing in a less liquid asset, such as a private equity or a real estate. You can use the Liquidity Adjusted CAPM (LCAPM) or other models to estimate the liquidity premium or discount, based on the bid-ask spread, the expected holding period, and the beta of your portfolio or asset. You can compare your liquidity premium or discount with your peers and competitors by using the same bid-ask spread, expected holding period, and beta, and by adjusting for any differences in asset quality, maturity, or volatility.

添加您的观点

Tushar Kore

40+ Clients Served | NISM Series - XV Certified | Investment Banking & Finance Enthusiast | Financial Modeling, MS Excel, Analytical Skills, SQL | 1M+ Impressions?? | CMA US Part 2 Candidate
举报内容
To account for liquidity risk—the difficulty of quickly selling an asset without losing value—you estimate the extra return (liquidity premium) or loss (liquidity discount) investors expect from less liquid assets like private equity or real estate. For instance, when valuing real estate, you might look at the difference between the buying (bid) and selling (ask) prices. Using models like the Liquidity Adjusted CAPM (LCAPM) helps calculate this premium based on holding time and risk. Comparing your estimates with similar assets can ensure you're getting a fair deal, adjusting for quality and stability differences.

已翻译

赞

6 How to use tools and data sources?

In order to benchmark and compare your market risk and liquidity risk adjustments with peers and competitors, reliable and relevant tools and data sources should be used. These include financial databases such as Bloomberg, Thomson Reuters, or Capital IQ which provide market data, financial statements, and analyst reports for various asset classes and sectors. Additionally, risk management software like RiskMetrics, Value at Risk, or Monte Carlo Simulation can be used to calculate VaR, simulate scenarios, and perform sensitivity analysis for your portfolio or asset. Valuation software such as Excel, DCF, or Multiples enable you to estimate the required return, discount rate, liquidity premium, or discount for your portfolio or asset based on different models and assumptions. Lastly, benchmarking reports such as Industry Surveys, Peer Group Analysis, or Comparative Valuation provide useful insights into the market risk and liquidity risk adjustments of your peers and competitors as well as their performance, valuation, and outlook.

添加您的观点

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Company Valuation

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

How do you benchmark and compare your market risk and liquidity risk adjustments with peers and competitors?

1

2

3

4

5

6

7

1 Why benchmark and compare?

2 How to measure market risk?

3 How to measure liquidity risk?

4 How to adjust for market risk?

5 How to adjust for liquidity risk?

6 How to use tools and data sources?

7 Here’s what else to consider

Company Valuation

给文章评分

感谢您的反馈

更多Company Valuation相关文章

更多相关阅读内容