Research

Research connecting valuation theory, public-market evidence, empirical testing, and professional application.

The AbbottModelDLOM research program examines marketability, liquidity, blockage, volatility, information asymmetry, due diligence, and exchange-option models.

The central objective is to connect theoretical valuation models with observable market evidence. This supports model inputs and conclusions that can be audited, reproduced, explained, and independently defended.

The research informs the platform’s methodology. It does not prescribe a universal DLOM or replace assignment-specific professional judgment.

Research Foundation

A discount for lack of marketability reflects the economic effect of an owner’s inability to obtain immediate liquidity at an otherwise supportable value.

The appropriate discount depends on several connected considerations:

• Duration of legal or contractual restrictions
• Time required for an orderly liquidation
• Volatility during the period of delayed liquidity
• Size of the ownership block
• Trading activity and public float
• Information available to buyers and sellers
• Financial and operating characteristics
• Rights and restrictions attached to the subject interest
• Expected transaction and disposition process

These considerations should not be converted automatically into separate additive discounts. Several may describe the same underlying economic effect.

The research therefore emphasizes a connected analytical sequence:

1. Identify the relevant public-market evidence.
2. Form a supportable reference cohort.
3. Evaluate liquidity and expected liquidation time.
4. Measure volatility over a defined historical period.
5. Identify the applicable information conditions.
6. Apply the appropriate exchange-option model.
7. Reconcile the quantitative evidence with assignment-specific facts.
8. Avoid double counting.
9. Document the professional conclusion.

Core Research Themes

Marketability, Liquidity, and Blockage

Marketability, liquidity, and blockage are related but distinct concepts.

Marketability concerns the ability to convert an ownership interest into cash. Liquidity concerns the time and price consequences of completing that conversion. Blockage concerns the price pressure or extended disposition period that may arise when an ownership block is large relative to normal trading activity.

The research examines how observable trading evidence can help estimate the time required for an orderly disposition.

It also distinguishes:

• The legal or contractual restriction period
• The post-restriction block-liquidation period
• The combined total delay
• The price effect of selling a large block
• The effect of uncertainty during delayed liquidity

This distinction helps the analyst select the appropriate horizon for the applicable model.

Exchange-Option Models

Exchange-option models provide a framework for estimating the economic effect of delayed liquidity and price uncertainty.

The research focuses on the progression between the Margrabe and Asian Average information conditions.

The Margrabe framework reflects a setting in which public information is available to both parties while relevant private information may remain asymmetrically held.

The Asian Average framework reflects movement toward fuller information symmetry when due diligence provides the buyer with relevant private information.

The research also examines the proper conversion of model exchange ratios into DLOM percentages. This conversion is important because an implied exchange premium is not automatically the same as a discount from the marketable value.

Liquidity and Liquidation Time

The research develops market-based measures of trading liquidity and expected liquidation time.

These include:

• Share turnover
• Lambda
• Half-life
• Volume-weighted average liquidation periods
• Estimated block-liquidation periods
• Total delay

These measures are connected. They should not be treated as independent premiums or added separately to a DLOM conclusion.

Instead, the liquidity evidence supports the estimated liquidation horizon. That horizon then enters the applicable model.

Volatility Measurement

Volatility measures the variability of investment returns over time.

The platform methodology estimates volatility from daily continuously compounded, or logarithmic, returns over a 365-calendar-day lookback period. This ordinarily represents approximately 252 trading days.

Daily volatility is annualized using the square root of 252.

The research examines how the selection of the volatility measure, lookback period, and liquidation horizon affects option-model indications and empirical congruence.

Information Asymmetry and Due Diligence

Private-company transactions may involve material differences in the information available to buyers and sellers.

Due diligence can reduce this information asymmetry. It also imposes a cost.

The research evaluates the economic tradeoff between:

• The cost of obtaining and validating private information
• The potential reduction in the DLOM indication
• The resulting increase in expected transaction proceeds
• The information condition represented by the selected model

The costly due-diligence framework assists with model selection. It is not an additional discount item.

The maximum economically supportable due-diligence cost depends on the value gained by moving from a higher-discount information condition toward a fuller-information condition.

Company Size and Liquidity

Smaller companies often exhibit lower trading activity, smaller public floats, and higher transaction costs.

The research examines whether part of the observed size premium may reflect differences in liquidity. This is important because adding a complete size premium and then applying a separate liquidity or marketability adjustment may count related risk more than once.

This research considers the relationship among:

• Company size
• Trading liquidity
• Market returns
• Size-decile assignments
• Residual size effects after controlling for liquidity
• DLOM and blockage adjustments

Financial Performance and Valuation

Financial performance provides context for valuation and marketability.

Research in this area includes:

• Profitability
• Financial condition
• Capital structure
• Company growth
• Cost of capital
• Financial distress
• Passive appreciation
• Market and company-specific value changes

Financial performance does not produce an automatic DLOM adjustment. It may influence investor perceptions, model interpretation, and professional judgment.

Published Research

Cost of Illiquidity and the Margrabe Framework

“Cost of Illiquidity: Marketability and Liquidity Discounts in a Margrabe Exchange Option Framework” was published in the Journal of Forensic Accounting Research in 2023.

The paper presents a Margrabe exchange-option framework for comparing the cost of illiquidity under different marketability, liquidity, and information conditions. The abstract is publicly available. Access to the full article may require a subscription or institutional login.

This research provides an important theoretical foundation for AbbottModelDLOM.

[Read the Journal Article]

Passive Appreciation

“Passive Appreciation in Divorce: A Quantitative Measure” was published in the Journal of Forensic Accounting Research in 2020.

The paper develops a quantitative framework for distinguishing value changes attributable to market and external forces from changes attributable to active efforts.

DLOM Across Company Size and Time

“Does One Size Fit All? Discounts for Lack of Marketability Across Size and Time” was published in The Value Examiner in 2017.

The paper examines whether DLOM evidence varies with company size and historical market conditions.

Best-Fit DLOM Analysis

“Estimating the Discount for Lack of Marketability: A Best Fit Model” was published in Valuation Strategies in 2012.

The research considers the selection and application of DLOM models in relation to observed evidence.

Understanding Option Models

“Discount for Lack of Liquidity: Understanding and Interpreting Option Models” was published in Business Valuation Review in 2009.

The paper addresses the interpretation of option-based approaches to liquidity and marketability discounts.

Quantitative Liquidity Measurement

“A Quantitative Measure of Discount for Lack of Liquidity” was published in Business Valuation Review in 2007.

The paper develops a quantitative framework for evaluating liquidity-related value effects.

Holding Periods for Listed Securities

“Estimating the Holding Period for Listed Securities” was published in Valuation Strategies in 2004.

This work examines how public-market trading evidence can inform the estimated time required to dispose of a security position.

Empirical DLOM Analysis

“Discount for Lack of Marketability: An Empirical Analysis” was published in Business Valuation Review in 2003.

The paper contributes to the empirical evaluation of marketability discounts.

[View Selected Publications]

Current Research Program

Empirical Validation of Exchange-Option DLOM Models

Current research evaluates exchange-option model indications using restricted-stock transaction evidence.

The analysis compares observed transaction discounts with model estimates developed from:

• Restriction periods
• Block-liquidation periods
• Total delay
• Daily volatility
• Trading liquidity
• Information conditions
• Company and transaction characteristics

The objective is to determine when particular model and input combinations provide the closest empirical congruence with observed discounts.

Economic Value of Due Diligence

This research evaluates whether the cost of reducing information asymmetry is justified by the potential improvement in transaction proceeds.

The analysis considers the economic threshold at which a seller would prefer to incur due-diligence costs and move toward a fuller-information transaction condition.

The research is intended to support model selection. It does not treat due-diligence cost as a separate additive discount.

PIPE Discounts and Risk Compensation

Research involving private investments in public equity examines whether observed discounts represent compensation for illiquidity, volatility, registration delay, information uncertainty, and financial distress.

It also evaluates whether the evidence supports interpretations based on risk compensation or investor rent extraction.

Size and Liquidity Premiums

Current work examines the relationship between company size, liquidity, and market returns across size deciles.

The objective is to determine how much of the reported size effect may be associated with differences in liquidity and whether a residual size premium remains after liquidity is considered.

Cross-Market Evidence

The platform’s U.S., Canadian, and U.K. market coverage creates opportunities for comparative research.

Cross-market analysis can test whether observed relationships are robust to differences in:

• Market structure
• Trading activity
• Company-size distributions
• Currency
• Public float
• Investor participation
• Disclosure and reporting environments

Cross-market findings should not be transferred automatically to a valuation assignment. Their relevance must be evaluated separately.

Empirical Research Principles

The research program emphasizes:

• Clearly defined samples
• Canonical issuer and quarter identifiers
• Duplicate and ambiguity controls
• Transparent inclusion and exclusion rules
• Consistent measurement units
• Defined volatility lookback periods
• Separation of restriction and liquidation time
• Uncapped or capped values identified explicitly
• Valid observation counts
• Distributional statistics
• Model equations and conversion conventions
• Sensitivity and robustness testing
• Reproducible analytical outputs

These practices make it possible to distinguish a model limitation from a data, classification, or measurement issue.

Relationship Between Research and the Platform

Research findings inform the platform’s analytical design.

Examples include:

• Quarter-specific market evidence
• Additive reference-cohort formation
• Use of the same cohort across analytical modules
• Defined daily-return volatility methodology
• Separation of restriction and liquidation periods
• Market-based liquidation horizons
• Margrabe-to-Asian Average model progression
• Costly due diligence as a model-selection aid
• Distributional peer comparisons
• Controls against double counting

The platform does not convert an empirical average into a universal DLOM conclusion.

Research results describe particular samples, periods, models, and information conditions. The analyst must determine whether those results are relevant to the subject interest and valuation date.

Professional Presentations and Education

The research has been presented to valuation, accounting, finance, and academic audiences in the United States and internationally.

Presentation topics have included:

• DLOM and blockage
• Margrabe exchange-option models
• Comparative DLOM models
• Holding periods and liquidity
• Company size and liquidity premiums
• Information asymmetry
• Company growth
• Cost of capital
• Passive appreciation
• Empirical testing of restricted-stock models

Professional presentations provide an opportunity to test the practical interpretation of the research and identify issues requiring further study.

Accessing the Research

Published articles may be subject to the access and copyright policies of their publishers.

The Research section may provide:

• Links to publisher pages
• Permitted author manuscripts
• Working-paper summaries
• Empirical exhibits
• Technical methodology notes
• Presentation materials
• Research updates

Materials should be identified clearly as published research, working papers, technical notes, or educational presentations.

Results from working papers are preliminary and may change as the analysis is refined or reviewed.

[View Published Papers]

[Review Empirical Validation]

[Read Technical Notes]

Appropriate Interpretation

The research provides analytical evidence. It does not determine the outcome of a particular valuation assignment.

Historical relationships may change across markets, quarters, industries, and transaction conditions. Empirical findings should be interpreted in light of:

• The applicable valuation date
• The subject company and interest
• The selected reference cohort
• The relevant market
• Available information
• Legal and contractual restrictions
• Expected disposition process
• Applicable professional standards

The valuation professional remains responsible for determining whether particular research findings are relevant and how they should influence the final conclusion.

Research Inquiries

Questions about published research, current projects, professional presentations, or potential research collaboration are welcome.

[Contact AbbottModelDLOM]