Understanding Cross-Country Differences in Valuation Ratios: A Variance Decomposition Approach

• 成果类型: Article
• 署名作者: Chue, Timothy K.
• 署名单位: Hong Kong Polytechnic University
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12127
• 发表日期: 2015
• 页码: 1617-+
• 关键词: consistent covariance-matrix; level stock returns; information-content; Aggregate earnings; SUBSEQUENT CHANGES; firm; prices; FUTURE; heteroskedasticity; predictability

摘要

We use a variance decomposition approach to examine why aggregate valuation ratios differ across countries. In a cross-section of 22 developed countries from 1980 to 2009, we find that 50 percent of all cross-country differences in the aggregate price-to-book ratio (P/B) can be explained by cross-country differences in expected future five-year profitability. In the second half of our sample period, this percentage exceeds that of the first half, rising to almost 64 percent. Although international differences in accounting standards and conventions may have made earnings from different countries more difficult to compare relative to dividends, we find that it is still cross-country differences in expected future profitability, rather than dividend growth rates, that are more closely related to international differences in valuation ratios. Even among 25 emerging markets, we find that expected future profitability at the five-year horizon can account for 29 percent of all cross-country P/B variations. Our results show that international investors are able to identify substantial cross-country differences in future-earnings prospects and incorporate them into stock market valuations.