A Framework for Value Investing

48 Pages Posted: 16 Aug 2013

See all articles by Richard G. Sloan

Richard G. Sloan

University of Southern California - Leventhal School of Accounting

Seungmin Chee

Korea University

Aydin Uysal

The Charles Schwab Corporation

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Date Written: August 15, 2013


This paper provides a framework for defining, formulating and evaluating value investment strategies. We define the relative value of an investment in terms of the prospective yield implied by the investment’s current price and expected future cash flows. We develop an intuitive and parsimonious approach for estimating the prospective yield by aggregating cum-dividend expected earnings over a suitable forecast horizon. We also adapt this approach to construct a realized yield metric that can be used as a more direct alternative to realized security returns in evaluating value strategies. We illustrate how our framework can be used to evaluate existing measures of value, construct improved measures of value, and attribute the returns to an investment strategy to value versus other sources.

Keywords: Value Investing, Earnings Aggregation

JEL Classification: G10, G12, M41

Suggested Citation

Sloan, Richard G. and Chee, Seungmin and Uysal, Aydin, A Framework for Value Investing (August 15, 2013). Available at SSRN: https://ssrn.com/abstract=2310852 or http://dx.doi.org/10.2139/ssrn.2310852

Richard G. Sloan (Contact Author)

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

Seungmin Chee

Korea University ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701

Aydin Uysal

The Charles Schwab Corporation ( email )

211 Main Street
San Francisco, CA 94105
United States

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