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Valuing Illiquid Equity Securities in Light of the Financial Crisis of 2007-2009

Minggu, 22 Mei 2011 | No Comments | Labels : ,

Personally, I have leamed more about economics in the last two years than I have in the last 30 plus years leading to the start of the crisis. Though the current financial crisis has not made me or my colleagues completely throw out our basic conceptual frameworks, it has painfully made us
reconsider some of our long-held "sacred views," crutches, and empirical estimates. Most importantly, 1 believe that the Financial Crisis of 2007-2009 has taught both academics and
practitioners the need to bridge the theory-practice divide.

The practitioner needs to bridge the gap between mathematical models and the behavior of decision makers such as asset managers, accountants, regulators, and the govemment. During the crisis days, seemingly esoteric issues such as mark-to-market vs. "steady-state value," and
international coordination of accounting procedures entered the daily public debate, underscoring the need to understand the pragmatic business management and government policy implications of the "finer points" of various academic positions.

To clarify some of these "finer points," this paper summarizes how mergers and acquisitions specialists and hedge fund portfolio managers adapt academic valuation techniques to fluid business situations. The paper focuses on the valuation of illiquid equity investments in light of the lessons we have leamed during the financial crisis of 2007- 2009.

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