In Ibbotson's Build-up method, one component is the size premia which is based on publicly-traded companies. How does one determine what size premia to use for privately held companies?

Question

In Ibbotson's Build-up method, one component is the size premia which is based on publicly-traded companies.  How does one determine what size premia to use for privately held companies?

anonymous · Answer

It is usually estimated the same way all Ibbotson premia are: from past history. Thus, the returns on small cap stocks over the last 75 years are compared to the returns on the overall market: the difference is the small cap premium