IFin Seminar, Thummim Cho, Korea University "Fundamental Values and Where (Else) To Find Them"
Institute of Finance
Date: 10 October 2024 / 12:25 - 13:40
Speaker: Thummim Cho, Korea University
Title: "Fundamental Values and Where (Else) To Find Them "
Date: October 10, 2024
Ore: 12:25 - 13:40
Room: PC-04 (Blue Building)
Lugano West Campus
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.
