A Framework for Value Investing

Posted: 12 Dec 2013

See all articles by Seungmin Chee

Seungmin Chee

Korea University

Richard G. Sloan

University of Southern California - Leventhal School of Accounting

Aydin Uysal

Menta Capital LLC.

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Date Written: December 10, 2013

Abstract

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 sum-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: Forecast horizon, prospective yield, value investing

Suggested Citation

Chee, Seungmin and Sloan, Richard G. and Uysal, Aydin, A Framework for Value Investing (December 10, 2013). Australian Journal of Management, Vol. 38, No. 3, 2013. Available at SSRN: https://ssrn.com/abstract=2365851

Seungmin Chee

Korea University ( email )

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

Richard G. Sloan (Contact Author)

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

Los Angeles, CA 90089-0441
United States

Aydin Uysal

Menta Capital LLC. ( email )

San Francisco, CA
United States

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