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Refined Selection or Sector Index?

Last month as part of the Blog’s mission to feature insight and analysis from across Ipreo’s different business units, we ran the first two parts of a series from our Private Capital Markets team focusing on the role volatility plays in the valuation of a private company.

In his second post on the subject of volatility, entitled “How Volatility Affects Valuation,” Cody Rosson (CVA), a Senior Valuation Analyst with Ipreo Private Capital Markets, dove deeper into the impact volatility has on determining the value of a company.

Today, in the final post of the three-part series, Cody is back with a dissection of the process itself, exploring two different methods of calculating volatility.


Since it is not typically possible to reasonably estimate future volatility of a private company, we must look at historical volatility of the appropriate sector index. This allows us to view public market data and compare the degree of volatility of our subject company to its industry sector. We can then select a volatility value based on what has taken place in the market.

A common debate regarding this method is whether a full industry sector index should be analyzed for volatility or if a smaller set of comparable companies should be used. An argument can be made that a smaller, more specific set of comparables could yield results more relatable to the subject company. However this method does have its flaws.

Read the full Special Report – Volatility: Refined Selection Or Sector Index?

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