Investment in EMU Countries Using the Expected Residual Income Valuation Method

Abstract:     
An equity valuation model, incorporating accounting information and analyst forecasts is utilized in selecting stocks from EMU countries. In the diverse accounting environment of the EMU countries, the valuation model is shown to be less sensitive to differences in accounting regimes than commonly used financial ratios. Furthermore, a strong value premium of over 17% (annualized) is documented in stock returns in EMU countries. The value premium is higher and more stable than the premium obtained by investments using commonly used value measures.

JEL Classifications: F30, G15, M40

Working Paper Series