Fundamentals-Based Risk Measurement in Valuation

• 成果类型: Article
• 署名作者: Nekrasov, Alexander; Shroff, Pervin K.
• 署名单位: University of California System; University of California Irvine; University of Minnesota System; University of Minnesota Twin Cities
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.2009.84.6.1983
• 发表日期: 2009
• 页码: 1983-2011
• 关键词: STOCK RETURNS; EARNINGS FORECASTS; cross-section; equity; cost; disclosure; LEVEL

摘要

We propose a methodology to incorporate risk measures based on economic fundamentals directly into the valuation model. Fundamentals-based risk adjustment in the residual income valuation model is captured by the covariance of ROE with market-wide factors. We demonstrate a method of estimating covariance risk out of sample based on the accounting beta and betas of size and book-to-market factors in earnings. We show how the covariance risk estimate can be transformed to obtain the fundamentals-based cost of equity. Our empirical analysis shows that value estimates based on fundamental risk adjustment produce significantly smaller deviations from price relative to the CAPM or the Fama-French three-factor model. We further find that our single-factor risk measure, based on the accounting beta alone, captures aspects of risk that are indicated by the book-to-market factor, largely accounting for the mispricing of value and growth stocks. Our study highlights the usefulness of accounting numbers in pricing risk beyond their role as trackers of returns-based measures of risk.