finexpert capital market report

finexpert

capital market report

12 | 2015

Volume 5

1

36

3

14

5

Preface & People

Current Research

Cost of Capital: Overview

CAPM: Beta Factor Development

Yield Curve: Svenson

finexpert | capital market report | Vol. 5

Detailed Table of Contents

Index Betas

DAX 30 p. 15

MDAX 50 p. 16

TecDAX 30 p. 17

Automobiles p. 18

Banks p. 19

Basic Resources p. 20

Chemicals p. 21

Construction p. 22

Consumer p. 23

Financial Services p. 24

Food & Beverages p. 25

Industrial p. 26

Insurance p. 27

Media p. 28

Pharma & Healthcare p. 29

Retail p. 30

Software p. 31

Technology p. 32

Telecommunication p. 33

Transport & Logistics p. 34

Utilities p. 35


Dear finexpert members, we are pleased to release the Q4 2015 finexpert capital market report. Please note the new structure and layout of this report: The research corner provides a short description of two important academic papers. Our industry beta estimates tables are followed by a graphical representation of the “rolling” estimate for 1y and 2y betas including the corresponding model power. You as a reader may use this graphs to further analyze the development and stability of the different industry beta estimates. Finally our estimate of the Svensson yield curve for the German market closes this report. For the next year 2016 we decided on a new structure and sequence of our finexpert market reports. We will start with our German takeover report in March, covering and analyzing the WpÜG takeovers of 2015. The second report in summer 2016 will be dealing with industry multiples whereas the third one in fall will cover the industry betas.

Preface

Best regards,

Prof. Dr. Bernhard Schwetzler,

Chair of Financial Management

HHL - Leipzig Graduate School of Management

1


People

Benjamin Hammer, M.Sc. Capital Market Data Research Interests: Private Equity, Entrepreneurial Finance E-Mail: [email protected]

Jun.-Prof. Dr. Alexander Lahmann Capital Market data, Yield Forecasts Research Interests: Asset Pricing & Corporate Valuation E-Mail: [email protected]

Johanna Stein, cand. B.Sc. Technical Editing Research Interests: Mathematical & Financial Economics E-Mail: [email protected]

2

mailto:[email protected]

mailto:[email protected]


Current Research

3


Return Predictability: Learning from the Cross-Section Julien Penasse

Research question:

If and how much does return predictability differ among countries?

Sample:

15 OECD countries (AUS, BEL, CAN, DNK, FRA, DEU, ITA, JPN, NLD, NOR, ESP, SWE, CHE, GBR, USA), sample periods differ among countries

Results:

International heterogeneity is a lot smaller than previously reported Investment decisions differ only a little across countries Cross-sectional information is an important investment decision tool The cost of ignoring the cross-sectional information differs extremely

between countries The United States have both a high equity premium and a high stock

return predictability. This is an exception not the rule

Current Research on Asset Pricing Topics

Misspecified Recovery Jaroslav Borovička, Lars Peter Hansen, José A. Scheinkman

Research question:

How can information about investors’ belief be isolated from asset prices?

Theory used:

Perron—Frobenius Theory

Results:

Asset prices contain information about the investors’ belief and the probability distributions used to assess risk

Information about Investors’ belief needs to be isolated The Perron—Frobenius Theory recovers a probability measure that

absorbs the long-term risk adjustments This probability measure is called “long-term risk neutral measure” Absorbing the long-term risk from the asset prices leaves the information

about the investors’ belief isolated

Note: Further working papers are available on http://www.finexpert.info/publications.html

4


Cost of Capital: Overview

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CAPM: Beta Factor Development

14


Development of CAPM Beta Factors - DAX 30

1 year vs. 2 year CAPM Equity Beta

1 year vs. 2 year CAPM R²

1.00

1.02

1.04

1.06

1.08

1.10

1.00

1.02

1.04

1.06

1.08

1.10

Oct‐13 Dec‐13 Feb‐14 Apr‐14 Jun‐14 Aug‐14 Oct‐14 Dec‐14 Feb‐15 Apr‐15 Jun‐15 Aug‐15 Oct‐15

Betas ‐ Equity Beta

DAX30 ‐ 1y Equity Beta DAX30 ‐ 2y Equity Beta

0.980

0.985

0.990

0.995

1.000

0.980

0.985

0.990

0.995

1.000


Betas ‐ R²

DAX30 ‐ 1y R² DAX30 ‐ 2y R²

15


Development of CAPM Beta Factors - MDAX 50



0.6

0.7

0.8

0.9

1.0

1.1

0.6

0.7

0.8

0.9

1.0

1.1



MDAX50 ‐ 1y Equity Beta MDAX50 ‐ 2y Equity Beta

0.5

0.6

0.7

0.8

0.9

1.0

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

MDAX50 ‐ 1y R² MDAX50 ‐ 2y R²

16


Development of CAPM Beta Factors - TecDAX 30



0.6

0.7

0.8

0.9

1.0

1.1

0.6

0.7

0.8

0.9

1.0

1.1



TecDAX30 ‐ 1y Equity Beta TecDAX30 ‐ 2y Equity Beta

0.70

0.75

0.80

0.85

0.90

0.95

1.00

0.70

0.75

0.80

0.85

0.90

0.95

1.00


Betas ‐ R²

TecDAX30 ‐ 1y R² TecDAX30 ‐ 2y R²

17


Development of CAPM Beta Factors - Automobiles



0.90

1.00

1.10

1.20

1.30

1.40

0.90

1.00

1.10

1.20

1.30

1.40



Automobiles ‐ 1y Equity Beta Automobiles ‐ 2y Equity Beta

0.5

0.6

0.7

0.8

0.9

1.0

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Automobiles ‐ 1y R² Automobiles ‐ 2y R²

18


Development of CAPM Beta Factors - Banks



0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8



Banks ‐ 1y Equity Beta Banks ‐ 2y Equity Beta

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Banks ‐ 1y R² Banks ‐ 2y R²

19


Development of CAPM Beta Factors - Basic Resources



0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4



Basic Resources ‐ 1y Equity Beta Basic Resources ‐ 2y Equity Beta

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Basic Resources ‐ 1y R² Basic Resources ‐ 2y R²

20


Development of CAPM Beta Factors - Chemicals



0.8

0.9

1.0

1.1

1.2

1.3

0.8

0.9

1.0

1.1

1.2

1.3



Chemicals ‐ 1y Equity Beta Chemicals ‐ 2y Equity Beta

0.5

0.6

0.7

0.8

0.9

1.0

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Chemicals ‐ 1y R² Chemicals ‐ 2y R²

21


Development of CAPM Beta Factors - Construction



0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5



Construction ‐ 1y Equity Beta Construction ‐ 2y Equity Beta

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Construction ‐ 1y R² Construction ‐ 2y R²

22


Development of CAPM Beta Factors - Consumer



0.5

0.6

0.7

0.8

0.9

1.0

0.5

0.6

0.7

0.8

0.9

1.0



Consumer ‐ 1y Equity Beta Consumer ‐ 2y Equity Beta

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Consumer ‐ 1y R² Consumer ‐ 2y R²

23


Development of CAPM Beta Factors - Financial Services



0.4

0.5

0.6

0.7

0.8

0.9

0.4

0.5

0.6

0.7

0.8

0.9



Financial Services ‐ 1y Equity Beta Financial Services ‐ 2y Equity Beta

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Financial Services ‐ 1y R² Financial Services ‐ 2y R²

24


Development of CAPM Beta Factors - Food & Beverages



0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9



Food & Beverages ‐ 1y Equity Beta Food & Beverages ‐ 2y Equity Beta

0.00

0.05

0.10

0.15

0.20

0.00

0.05

0.10

0.15

0.20


Betas ‐ R²

Food & Beverages ‐ 1y R² Food & Beverages ‐ 2y R²

25


Development of CAPM Beta Factors - Industrial



0.85

0.90

0.95

1.00

1.05

1.10

0.85

0.90

0.95

1.00

1.05

1.10



Industrial ‐ 1y Equity Beta Industrial ‐ 2y Equity Beta

0.70

0.75

0.80

0.85

0.90

0.95

1.00

0.70

0.75

0.80

0.85

0.90

0.95

1.00


Betas ‐ R²

Industrial ‐ 1y R² Industrial ‐ 2y R²

26


Development of CAPM Beta Factors - Insurance



0.7

0.8

0.9

1.0

1.1

1.2

1.3

0.7

0.8

0.9

1.0

1.1

1.2

1.3



Insurance ‐ 1y Equity Beta Insurance ‐ 2y Equity Beta

0.5

0.6

0.7

0.8

0.9

1.0

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Insurance ‐ 1y R² Insurance ‐ 2y R²

27


Development of CAPM Beta Factors - Media



0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0



Media ‐ 1y Equity Beta Media ‐ 2y Equity Beta

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Media ‐ 1y R² Media ‐ 2y R²

28


Development of CAPM Beta Factors - Pharma & Healthcare



0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0



Pharma ‐ 1y Equity Beta Pharma ‐ 2y Equity Beta

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Pharma ‐ 1y R² Pharma ‐ 2y R²

29


Development of CAPM Beta Factors - Retail



0.4

0.5

0.6

0.7

0.8

0.9

0.4

0.5

0.6

0.7

0.8

0.9



Retail ‐ 1y Equity Beta Retail ‐ 2y Equity Beta

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Retail ‐ 1y R² Retail ‐ 2y R²

30


Development of CAPM Beta Factors - Software



0.5

0.6

0.7

0.8

0.9

1.0

0.5

0.6

0.7

0.8

0.9

1.0



Software ‐ 1y Equity Beta Software ‐ 2y Equity Beta

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Software ‐ 1y R² Software ‐ 2y R²

31


Development of CAPM Beta Factors - Technology



0.8

0.9

1.0

1.1

1.2

1.3

1.4

0.8

0.9

1.0

1.1

1.2

1.3

1.4



Technology ‐ 1y Equity Beta Technology‐ 2y Equity Beta

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Technology ‐ 1y R² Technology ‐ 2y R²

32


Development of CAPM Beta Factors - Telecommunication



0.6

0.7

0.8

0.9

1.0

1.1

1.2

0.6

0.7

0.8

0.9

1.0

1.1

1.2



Telecommunication ‐ 1y Equity Beta Telecommunication‐ 2y Equity Beta

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Telecommunication ‐ 1y R² Telecommunication ‐ 2y R²

33


Development of CAPM Beta Factors - Transport & Logistics



0.7

0.8

0.9

1.0

1.1

1.2

1.3

0.7

0.8

0.9

1.0

1.1

1.2

1.3



Transportation ‐ 1y Equity Beta Transportation‐ 2y Equity Beta

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Transportation ‐ 1y R² Transportation ‐ 2y R²

34


Development of CAPM Beta Factors - Utilities



0.6

0.7

0.8

0.9

1.0

1.1

1.2

0.6

0.7

0.8

0.9

1.0

1.1

1.2



Utilities ‐ 1y Equity Beta Utilities‐ 2y Equity Beta

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


Betas ‐ R²

Utilities ‐ 1y R² Utilities ‐ 2y R²

35


Yield Curve: Svensson

36


In this section, we provide a detailed overview on the estimation of a single risk

-free rate for corporate valuation out of a non-flat yield curve. The yield curve

depicts the relation between the time to maturity and the yield of a bond without

any default risk. Due to the lack of zero bonds for each maturity, the continuous

yield curve has to be estimated either out of observed bond yields using the

Nelson and Siegel (1987) or the parametric approach by Svensson (1994).

To determine the yield curve according to the Svensson procedure, the

following standard formula is applied:

Yield Curve: Svensson (1994)

All necessary parameters are provided by the German Central Bank (Deutsche

Bundesbank).

To illustrate the results, Figure 1 displays the overall minimum (march) and

maximum (june) yield curves for the year 2015. As a reference, the estimated

yield curve for November 2015 is also displayed. Note that for all three cases

short term rates are negative. While the curves proceed similar for the short

terms, the difference between the highest and lowest yields is more than one

percentage point for longer maturities. To highlight these differences Table 1

displays the maturity-specific minimum (min), maximum (max), average (avg),

median and variance of the monthly estimations from Nov 2014 to Nov 2015.

37


Figure 1: Highest and lowest yield curve for the year 2015

Term 1 2 3 4 5 6 7 8 9 10

min -0.4048 -0.4192 -0.3759 -0.2922 -0.1813 -0.0540 0.0248 0.0936 0.1588 0.2192

max -0.0997 -0.0987 -0.0985 -0.0326 0.1110 0.2653 0.4223 0.5765 0.7239 0.8619

avg -0.2525 -0.2444 -0.1999 -0.1255 -0.0302 0.0777 0.1912 0.3053 0.4163 0.5217

median -0.2547 -0.2388 -0.1851 -0.1033 -0.0101 0.0894 0.1905 0.3089 0.4236 0.5323

var 0.0055 0.0057 0.0048 0.0050 0.0067 0.0096 0.0136 0.0188 0.0248 0.0316

Term 11 12 13 14 15 16 17 18 19 20

min 0.2741 0.3237 0.3682 0.4079 0.4434 0.4752 0.5037 0.5292 0.5523 0.5732

max 0.9890 1.1042 1.2073 1.2984 1.3779 1.4464 1.5046 1.5534 1.5934 1.6257

avg 0.6201 0.7107 0.7929 0.8670 0.9330 0.9913 1.0425 1.0869 1.1252 1.1579

median 0.6337 0.7314 0.8226 0.9105 0.9898 1.0597 1.1206 1.1729 1.2172 1.2540

var 0.0388 0.0461 0.0532 0.0600 0.0662 0.0716 0.0761 0.0798 0.0825 0.0843

Term 21 22 23 24 25 26 27 28 29 30

min 0.5922 0.6095 0.6253 0.6398 0.6531 0.6655 0.6769 0.6875 0.6974 0.7067

max 1.6509 1.6699 1.6833 1.6918 1.6961 1.6967 1.6941 1.6888 1.6813 1.6718

avg 1.1854 1.2083 1.2270 1.2420 1.2537 1.2625 1.2687 1.2727 1.2746 1.2749

median 1.2840 1.3078 1.3260 1.3390 1.3476 1.3520 1.3530 1.3507 1.3458 1.3384

var 0.0852 0.0854 0.0849 0.0839 0.0824 0.0806 0.0785 0.0762 0.0739 0.0716

Table 1: Minimum, maximum, arithmetic average, median and variance of maturity specific yields

38


Based on this 3-month-average yield curve, we calculate a single interest rate

over all maturities that results in the same present value as the term specific

rates (For a detailed explanation refer to Dörschel / Franken / Schulte, "Der

Kapitalisierungszinssatz in der Unternehmensbewertung" (IDW), 1. Aufl. 2009,

S. 52 ff.). If this requirement shall be met, the following equality has to hold:

Rearranging yields

To reduce the impact of high interest rate volatility on the calculation of firm

values the IDW recommends to use the average of the daily calculated spot

rates over the last three months (see "WP-Handbuch" (IDW), Band II, 14. Aufl.

2014, S. 119ff.) for each term. Figure 2 shows the respective curve as of

November 30th, 2015.

Figure 2: Svensson Yield curve using the IDW 3-month-average technique

39


where i0,t is the term specific rate, ie the single interest rate that results in an

equivalent present value, z the risk premium (MRP * β) and g the growth rate of

the firms future cash flows. We assume the parameters g=1%, MRP=6% and

β=1, and round the resulting single rate to quarter percentage points. This

results in a final rate of ie=1,25%. Following the IDW recommendations this rate

represents the risk-free rate for the estimation of the firm´s cost of equity.

40

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