Warranted Multiples and Future Returns

34 Pages Posted: 26 Mar 2013

See all articles by Jiyoun An

Jiyoun An

Kyung Hee University

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management

David T. Ng

Johnson College of Business

Date Written: March 25, 2013

Abstract

We propose an alternative way of using accounting multiples to predict future returns. We define excess multiple as the difference between an accounting multiple and the warranted multiple based on a firm's fundamental value drivers. Firms with low excess multiples have higher one-to-three years ahead stock returns than firms that have high excess multiples. This difference in returns is economically and statistically significant and cannot be explained by Fama-French three factors or a momentum factor.

Keywords: Accounting, Multiples, Warranted Multiples, Future Returns

JEL Classification: G12

Suggested Citation

An, Jiyoun and Bhojraj, Sanjeev and Ng, David T., Warranted Multiples and Future Returns (March 25, 2013). Journal of Accounting, Auditing and Finance, Vol. 25, No. 2, 2010. Available at SSRN: https://ssrn.com/abstract=2239459

Jiyoun An

Kyung Hee University ( email )

1732 Deogyeong-daero
Giheung-gu
Yongin-si, Gyeonggi-do, Gyeonggi-Do 446-701
Korea, Republic of (South Korea)

HOME PAGE: http://kic.khu.ac.kr/

Sanjeev Bhojraj

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Accounting
Ithaca, NY 14853
United States
607-255-4069 (Phone)
607-254-4590 (Fax)

David T. Ng (Contact Author)

Johnson College of Business ( email )

301G Warren Hall, Cornell University
Ithaca, NY 14850-1967
United States
6072550145 (Phone)

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