Abstract

http://ssrn.com/abstract=622541
 
 

References (27)



 


 



A Generalized Earnings-Based Stock Valuation Model


Ming Dong


York University - Schulich School of Business

David A. Hirshleifer


University of California, Irvine - Paul Merage School of Business

November 15, 2004


Abstract:     
This paper provides a model for valuing stocks that takes into account the stochastic processes for earnings and interest rates. Our analysis differs from past research of this type in being applicable to stocks that have a positive probability of zero or negative earnings. By avoiding the singularity at the zero point, our earnings-based pricing model achieves improved pricing performance. The out-of-sample pricing performance of Generalized Earnings Valuation Model (GEVM) and the Bakshi and Chen (2001) pricing model are compared on four stocks and two indices. The generalized model has smaller pricing errors, and greater parameter stability. Furthermore, deviations between market and model prices tend to be mean-reverting using the GEVM model, suggesting that the model may be able to identify stock market misvaluation.

Number of Pages in PDF File: 44

Keywords: Stock valuation, negative earnings, asset pricing

JEL Classification: G10, G12, G13

working papers series





Download This Paper

Date posted: November 22, 2004  

Suggested Citation

Dong, Ming and Hirshleifer, David A., A Generalized Earnings-Based Stock Valuation Model (November 15, 2004). Available at SSRN: http://ssrn.com/abstract=622541 or http://dx.doi.org/10.2139/ssrn.622541

Contact Information

Ming Dong (Contact Author)
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)
David A. Hirshleifer
University of California, Irvine - Paul Merage School of Business ( email )
Irvine, CA California 92697-3125
United States
Feedback to SSRN


Paper statistics
Abstract Views: 3,922
Downloads: 1,131
Download Rank: 8,911
References:  27

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.234 seconds