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Valuation in Emerging Markets: A Simulation Approach

Author

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  • Javier García-Sánchez
  • Lorenzo Preve
  • Virginia Sarria-Allende

Abstract

Most of the foundations of valuation theory have been designed for use in developed markets. Because of the greater, and in some cases different, risks associated with emerging markets (although recent experience might suggest otherwise), investors and corporate managers are often uncomfortable using traditional methods. The typical way of capturing emerging-market risks is to increase the discount rate in the standard valuation model. But, as the authors argue, such adjustments have the effect of undermining some of the basic assumptions of the CAPM-based discounted cash flow model. Copyright Copyright (c) 2010 Morgan Stanley.

Suggested Citation

  • Javier García-Sánchez & Lorenzo Preve & Virginia Sarria-Allende, 2010. "Valuation in Emerging Markets: A Simulation Approach," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(2), pages 100-108.
  • Handle: RePEc:bla:jacrfn:v:22:y:2010:i:2:p:100-108
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    References listed on IDEAS

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    1. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
    2. Stephen Godfrey & Ramon Espinosa, 1996. "A Practical Approach To Calculating Costs Of Equity For Investments In Emerging Markets," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 80-90.
    3. Pereiro, Luis E., 2001. "The valuation of closely-held companies in Latin America," Emerging Markets Review, Elsevier, vol. 2(4), pages 330-370, December.
    4. Donald R. Lessard, 1996. "Incorporating Country Risk In The Valuation Of Offshore Projects," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 52-63.
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    Cited by:

    1. Niso Abuaf, 2015. "Valuing Emerging Market Equities—A Pragmatic Approach Based on the Empirical Evidence," Journal of Applied Corporate Finance, Morgan Stanley, vol. 27(1), pages 71-88, March.
    2. Maquieira, Carlos P. & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2012. "Theory and practice of corporate finance: Evidence and distinctive features in Latin America," Emerging Markets Review, Elsevier, vol. 13(2), pages 118-148.

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