Based on the given data, we have to use the Singer Terhaar model to estimate returns for small cap emerging market equities.
The parameters given in the data are related to the Emerging Market Small Cap Equity and Global Investable Market. Based on the solution by the institute, they add the illiquidity premium to the small cap return generated by the Singer Terhaar model.
My doubt is that, if the parameters are related to emerging market small cap equities, don’t they already include illiquidity premium? Wouldn’t additionally including the illiquidity premium lead to double counting?
Can someone please confirm?
Here is the solution from the institute