- 8 -
Johnson reasonably based the small-stock premium he used in
his report on data from Ibbotson Associates.6 Later data from
Ibbotson Associates7 show that the small-stock premium has
declined since about 1983 or 1984, but that small capitalization
stocks were yielding higher average returns than large
capitalization stocks in 1993.
Respondent attached to respondent’s opening brief an
appendix which shows that large capitalization stocks have
outperformed small stocks since about 1988. We do not consider
the information in the appendix because respondent provided no
source for it.
Respondent relies on an article by Bajaj & Hakala,
“Valuation for Smaller Capitalization Companies”, published in
Financial Valuation: Businesses and Business Interests, ch. 12A
(Hanan & Sheeler ed. 1998), for the proposition that there is no
small-stock premium. We find Johnson’s analysis to be more
persuasive.
Fuller testified that it is appropriate to use the Ibbotson
Associates data from the 1978-92 period rather than from the
1926-92 period because small stocks did not consistently
6 See Ibbotson Associates, Stocks, Bonds, Bills &
Inflation, 1993 Yearbook 128 (Ibbotson 1993); see also Estate of
Hendrickson v. Commissioner, T.C. Memo. 1999-278 (citing id. at
125).
7 See Ibbotson Associates, Stocks, Bonds, Bills &
Inflation, 1999 Yearbook 121 (Ibbotson 1999).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011