Future Realized Return, Firm-Specific Risk and the Implied Expected Return
Wang, P
Date: 20 June 2017
Journal
Abacus
Publisher
Wiley
Publisher DOI
Abstract
In this paper, we propose a novel approach to derive a firm-specific measure of expected
return. It builds on recent accounting-based valuation models developed by Clubb (2013) and
Ashton and Wang (2013). The measure is intrinsically linked to commonly used financial
ratios including book-to-market, (forward) earnings yield, ...
In this paper, we propose a novel approach to derive a firm-specific measure of expected
return. It builds on recent accounting-based valuation models developed by Clubb (2013) and
Ashton and Wang (2013). The measure is intrinsically linked to commonly used financial
ratios including book-to-market, (forward) earnings yield, dividend-to-price as well as growth
and past returns. The empirical evidence shows that it is significantly positively associated
with future realized stock returns and also significantly correlates with commonly used risk
characteristics in a theoretically predictable manner. The results are likely to be of interest to
practitioners and managers in making capital allocation decisions and to academics in need of
proxies for firms’ discount rates and expected returns.
Finance and Accounting
Faculty of Environment, Science and Economy
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