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How do you define the risk factors used in the model?


The risk factors in the model are defined in a manner similar to well-established asset pricing studies in finance literature. Care has been taken to ensure the risk factors capture the latest available information at the time of the transaction being modelled and do not have any look-ahead bias. Also, for modelling convenience, we perform logarithmic transformations on factors and the P/S ratio, to achieve close to a normal distribution on each quantity, which improves model performance.

Further Reading

The detailed definitions of the risk factors are available in our PE valuation white paper and online under our Asset Pricing Approach.

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