The Dark Side of Valuation
Analysts who have to value emerging-market companies confront more challenges than those who have to value developed-market companies. Some analysts develop coping mechanisms that, while making their jobs easier, can lead to serious valuation errors over time and across companies. This section highlights the unhealthy responses to the uncertainty we face when valuing these companies.
Currency Mismatches
If it is difficult to estimate the risk-free rate and other risk measures in the local currency, it is tempting to switch to another (more stable) currency when estimating discount rates. Many Latin American analysts, for instance, estimate the discount rates for local companies in U.S. dollars. That by itself is defensible ...
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