Download or read book Residual Income Model and Abnormal Returns written by Marco Pinochi and published by . This book was released on 2019 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the return forecasting ability of a residual income model based on analysts' estimates and time-varying risk-free rates, equity risk premiums and terminal value growths, in US and Europe, along the period 1995-2018. While the academic literature acknowledged the reliability of the model, practitioners and especially market operators paid scarce attention to it. Therefore, in a framework where market inefficiencies are admitted, a valuation model that shows superior predicting power for returns, at least compared to main market multiples and analysts' recommendations, should be considered in providing better empirical estimates of intrinsic value. We display three major results: a) RIM-based V/P portfolios yield statistically significant alphas relative to market indexes; b) outperform portfolios built through other factors, reporting higher Sharpe ratios and information ratios; c) remarkably beat analysts' buy-sell recommendations. Furthermore, two facts stand out: RIM proves to be extremely effective in signaling overvalued stocks and producing substantial long-short returns; the simpler RIM model studied generatesbetter outcomes than the more complex one.

Download or read book An Empirical Assessment of the Residual Income Valuation Model written by Patricia M. Dechow and published by . This book was released on 1997 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides an empirical assessment of the residual income valuation model presented in Ohlson (1995). We demonstrate that existing empirical research using Ohlson2s model is remarkably similar to past empirical workbased on the standard version of the dividend discounting model. We establish that the key unexploited empirical implications of Ohlson2s model derive from its assumption concerning the time-series properties of residual income. We show that this assumption is more empirically descriptive than the assumptions embedded in popular accounting-based valuation models. We find that a simple empirical version of the residual income valuation model provides modest improvements over the popular models in predicting and explaining future (abnormal) earnings, current stock prices and current stock returns. We also show that the residual income valuation model is the best predictor of future stock returns, and that this result is, at least in part, due to its ability to identify systematic errors inanalysts2 earnings forecasts.

Download or read book Corporate Valuation written by Mario Massari and published by John Wiley & Sons. This book was released on 2016-07-15 with total page 512 pages. Available in PDF, EPUB and Kindle. Book excerpt: Risk consideration is central to more accurate post-crisis valuation Corporate Valuation presents the most up-to-date tools and techniques for more accurate valuation in a highly volatile, globalized, and risky business environment. This insightful guide takes a multidisciplinary approach, considering both accounting and financial principles, with a practical focus that uses case studies and numerical examples to illustrate major concepts. Readers are walked through a map of the valuation approaches proven most effective post-crisis, with explicit guidance toward implementation and enhancement using advanced tools, while exploring new models, techniques, and perspectives on the new meaning of value. Risk centrality and scenario analysis are major themes among the techniques covered, and the companion website provides relevant spreadsheets, models, and instructor materials. Business is now done in a faster, more diverse, more interconnected environment, making valuation an increasingly more complex endeavor. New types of risks and competition are shaping operations and finance, redefining the importance of managing uncertainty as the key to success. This book brings that perspective to bear in valuation, providing new insight, new models, and practical techniques for the modern finance industry. Gain a new understanding of the idea of "value," from both accounting and financial perspectives Learn new valuation models and techniques, including scenario-based valuation, the Monte Carlo analysis, and other advanced tools Understand valuation multiples as adjusted for risk and cycle, and the decomposition of deal multiples Examine the approach to valuation for rights issues and hybrid securities, and more Traditional valuation models are inaccurate in that they hinge on the idea of ensured success and only minor adjustments to forecasts. These rules no longer apply, and accurate valuation demands a shift in the paradigm. Corporate Valuation describes that shift, and how it translates to more accurate methods.

Download or read book Residual Income Based Valuation Predicts Future Stock Returns written by Ashiq Ali and published by . This book was released on 2003 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Frankel and Lee (1998) show that the value-to-price ratio (Vf/P) predicts future abnormal returns for up to three years, where Vf is an estimate of fundamental value based on a residual income valuation framework operationalized using analyst earnings forecasts. In this study, we examine whether the Vf/P effect is due to market mispricing or omitted risk factors. We find that the Vf/P effect is partially concentrated around the future earnings announcements, consistent with the mispricing explanation. On using an extensive set of risk proxies, suggested by Gebhardt et al. (2001) and Gode and Mohanram (2001), we also find that Vf/P is significantly related to some risk proxies. However, after controlling for these risk factors, Vf/P continues to exhibit a significant positive association with future returns suggesting that these risk factors are not responsible for the Vf/P effect. Overall, the results seem consistent with the mispricing explanation for the Vf/P effect.

Download or read book Business Analysis and Valuation written by Sue Joy Wright and published by . This book was released on 2014 with total page 720 pages. Available in PDF, EPUB and Kindle. Book excerpt: Business Analysis and Valuation has been developed specifically for students undertaking accounting Valuation subjects. With a significant number of case studies exploring various issues in this field, including a running chapter example, it offers a practical and in-depth approach. This second edition of the Palepu text has been revitalised with all new Australian content in parts 1-3, making this edition predominantly local, while still retaining a selection of the much admired and rigorous Harvard case studies in part 4. Retaining the same author team, this new edition presents the field of valuation accounting in the Australian context in a clear, logical and thorough manner.

Download or read book Valuation Approaches and Metrics written by Aswath Damodaran and published by Now Publishers Inc. This book was released on 2005 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: Valuation lies at the heart of much of what we do in finance, whether it is the study of market efficiency and questions about corporate governance or the comparison of different investment decision rules in capital budgeting. In this paper, we consider the theory and evidence on valuation approaches. We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model to value stocks to the use of excess return models in more recent years. In the second part of the paper, we examine relative valuation models and, in particular, the use of multiples and comparables in valuation and evaluate whether relative valuation models yield more or less precise estimates of value than discounted cash flow models. In the final part of the paper, we set the stage for further research in valuation by noting the estimation challenges we face as companies globalize and become exposed to risk in multiple countries.

Download or read book Estimating the Cost of Capital Implied by Market Prices and Accounting Data written by Peter Easton and published by Now Publishers Inc. This book was released on 2009 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt: Estimating the Cost of Capital Implied by Market Prices and Accounting Data focuses on estimating the expected rate of return implied by market prices, summary accounting numbers, and forecasts of earnings and dividends. Estimates of the expected rate of return, often used as proxies for the cost of capital, are obtained by inverting accounting-based valuation models. The author describes accounting-based valuation models and discusses how these models have been used, and how they may be used, to obtain estimates of the cost of capital. The practical appeal of accounting-based valuation models is that they focus on the two variables that are commonly at the heart of valuations carried out by equity analysts -- forecasts of earnings and forecasts of earnings growth. The question at the core of this monograph is -- How can these forecasts be used to obtain an estimate of the cost of capital? The author examines the empirical validity of the estimates based on these forecasts and explores ways to improve these estimates. In addition, this monograph details a method for isolating the effect of any factor of interest (such as cross-listing, fraud, disclosure quality, taxes, analyst following, accounting standards, etc.) on the cost of capital. If you are interested in understanding the academic literature on accounting-based estimates of expected rate of return this monograph is for you. Estimating the Cost of Capital Implied by Market Prices and Accounting Data provides a foundation for a deeper comprehension of this literature and will give a jump start to those who have an interest in these topics. The key ideas are introduced via examples based on actual forecasts, accounting information, and market prices for listed firms, and the numerical examples are based on sound algebraic relations.

Download or read book Accounting for Value written by Stephen Penman and published by Columbia University Press. This book was released on 2010-12-30 with total page 265 pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting for Value teaches investors and analysts how to handle accounting in evaluating equity investments. The book's novel approach shows that valuation and accounting are much the same: valuation is actually a matter of accounting for value. Laying aside many of the tools of modern finance the cost-of-capital, the CAPM, and discounted cash flow analysis Stephen Penman returns to the common-sense principles that have long guided fundamental investing: price is what you pay but value is what you get; the risk in investing is the risk of paying too much; anchor on what you know rather than speculation; and beware of paying too much for speculative growth. Penman puts these ideas in touch with the quantification supplied by accounting, producing practical tools for the intelligent investor. Accounting for value provides protection from paying too much for a stock and clues the investor in to the likely return from buying growth. Strikingly, the analysis finesses the need to calculate a "cost-of-capital," which often frustrates the application of modern valuation techniques. Accounting for value recasts "value" versus "growth" investing and explains such curiosities as why earnings-to-price and book-to-price ratios predict stock returns. By the end of the book, Penman has the intelligent investor thinking like an intelligent accountant, better equipped to handle the bubbles and crashes of our time. For accounting regulators, Penman also prescribes a formula for intelligent accounting reform, engaging with such controversial issues as fair value accounting.

Download or read book What Determines Residual Income written by Qiang Cheng and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the determinants of residual income scaled by book value of equity, i.e., abnormal return on equity (ROE), by analyzing the impact of value-creation (economic rents) and value-recording (conservative accounting) processes on abnormal ROE. I rely on economic theories to characterize economic rents and develop an empirical measure - the conservative accounting factor - to capture the effect of conservative accounting. As expected, industry abnormal ROE increases with industry concentration, industry level barriers to entry, and industry conservative accounting factors. Also as expected, the difference between firm and industry abnormal ROE increases with market share, firm size, firm level barriers to entry, and firm conservative accounting factors. Integrating these determinants into the residual income valuation model significantly increases its explanatory power for the variation in the market-to-book ratio.

Download or read book Analysis of the Residual Income Valuation and Abnormal Earnings Growth Models written by Jose Elias Feres de Almeida and published by . This book was released on 2015 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper revisits two valuation models based on accounting figures: the Residual Income Valuation (RIV) and Abnormal Earnings Growth (AEG). Our research design has two approaches: i) we demonstrate theoretical integration of both models; and ii) we show in a practical manner that models converge to the same results based on real data of analysts forecast consensus. We apply statistical tests on empirical data from analyst's forecasts available on Thomson One Analytics database. We use information of 45 firms listed on the IBovespa segment from BMF&BOVESPA in 2008 with historical data from 2003 to 2007 and analysts' projections from 2003 to 2010. Our results do not show a significant mean difference of the valuations, but those from the RIV model are more dispersed than those produced by the AEG model. Furthermore, our results are consistent with international evidences and present additional evidences of application of valuation models based on accounting information in Brazil. Our findings support the use of valuation models based on accounting figures by analysts, investors, rating agencies and regulators to provide additional analyses of firm's future prospects.

Download or read book Essays on the Residual Income Valuaiton Model written by Qiang Cheng and published by . This book was released on 2002 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Theory and Measurement of Business Income written by Edgar O. Edwards and published by Univ of California Press. This book was released on 1973 with total page 344 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book On the Consistent Inference of the Economic Relation of the Residual Income Valuation Model written by Jian Kang and published by . This book was released on 2017 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Residual Earnings (RE) model has informed the capital market research over the last twenty years. To employ it in an empirical setting researchers commonly make extra assumptions about how future RE are related to and predicted by today's observed numbers. In this article, we show that the RE valuation relation can be estimated without a priori assumptions on exactly how observable data projects future earnings. The linkage between informative current values and expectations of future abnormal earnings is consistently inferred directly from the data. By letting the data speak we eliminate the risk of misspecifying the mechanism of expectation formation through unfitting assumptions.

Download or read book Investment Performance of Residual Income Valuation Models on the German Stock Market written by Goesta Jamin and published by . This book was released on 2009 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses value-investing strategies based on the residual income valuation approach which has become popular due to the work of Ohlson (1995) and Feltham and Ohlson (1995) for the German stock market. Plenty of empirical evidence shows that it is possible to earn positive abnormal returns by investing in on the basis of simple fundamental ratios such as PE ratio, PB ratio, or dividend yield undervalued stocks. A price-value (PV) ratio calculated with the residual income approach is theoretically better founded than the simple ratios mentioned above as it captures all value-generating aspects. Four model specifications are developed and their performance when using them for value-investing strategies is compared to the performance of the simple ratios for German companies over a period of 1990 - 2002. It turns out that fundamentally undervalued companies indeed earn higher returns but the results are statistically weak and the theoretically superior models do not perform significantly better than the simple ratios.

Download or read book Time Series Analysis and Its Applications written by Robert H. Shumway and published by . This book was released on 2014-01-15 with total page 568 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Using the Residual Income Stock Price Valuation Model to Teach and Learn Ratio Analysis written by Robert F. Halsey and published by . This book was released on 2001 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article provides an overview of the residual-income stock price valuation model and demonstrates its use in interpreting the DuPont return on equity (ROE) decomposition. The model provides theoretical support for the DuPont model's focus on ROE and aids in understanding the implications of the price-to-book and price-earnings ratios. I conclude with an application of the model in the valuation of Nordstrom, Inc.

Download or read book Expectations and the Structure of Share Prices written by John G. Cragg and published by University of Chicago Press. This book was released on 2009-05-15 with total page 185 pages. Available in PDF, EPUB and Kindle. Book excerpt: John G. Cragg and Burton G. Malkiel collected detailed forecasts of professional investors concerning the growth of 175 companies and use this information to examine the impact of such forecasts on the market evaluations of the companies and to test and extend traditional models of how stock market values are determined.