Using Industry Specific Risk |
|
Using Industry Specific Risk |
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Ibbotson publishes industry specific risk tables. The industry specific risk premiums are an additional component in the build up model. It should be noted that the Industry Specific Risk can be either positive or negative. The following example shows an industry risk premium in the build up model using a 10th decile Beta Adjusted risk premium:
Risk Free Rate |
5.20 |
Large Company Equity Risk |
7.80 |
Small Stock Equity Risk |
4.63 |
Company Specific Risk |
?.?? |
Industry Specific Risk* |
-3.10 |
Total Risk (less Company Specific Risk) |
14.52 |
* SIC 01, Agricultural Production - Crops