Fundamental Values and Where (Else) To Find Them
With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.
Authors
José Liberti, Jason Sturgess, and Andrew Sutherland
Abstract
We estimate stock-level fundamental values using discounted alphas, not discounted cash flows (DCF). Our novel approach builds on extant research on alphas (abnormal returns), does not require stock-level discount rates as inputs as DCF does, and only requires estimates of linear regressions. We document five empirical findings. (i) Several stock characteristics contain useful incremental information about stock-level fundamental values. (ii) Signals of misvaluation suggested in the literature tend to add incremental information. (iii) Large misvaluations with respect to factor models are rare and the stock market is “almost efficient” by Black’s (1986) definition. (iv) There is substantial heterogeneity in firm-level cost of equity, which generates persistent differences in post-formation average returns. (v) Cleaning up the value spread based on estimates from our approach allows us to robustly predict stocks’ future cash flow growth, not just cash flow levels.
About the speaker
Thummim Cho is an Associate Professor of Finance (untenured) at Korea University.
Language
English.
This is a free seminar. Registration is mandatory.
Cold lunches are provided to registered participants.
Supported by the Luxembourg National Research Fund (FNR) 17984041