Book Values, Earnings, and Market Valuations

50 Pages Posted: 15 Nov 2002

See all articles by Nengjiu Ju

Nengjiu Ju

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Gurdip Bakshi

Fox School of Business

Date Written: November 2002

Abstract

This article develops a family of stock valuation models that are based on book values and earnings. The modeling approach can be consistent with a large class of allowable dividend policies and does not require an explicit forecast of future book values. Reconciling empirical evidence, the model determined expected rate of return is related to book-to-market and earnings yield. Model implementation using S&P 500 stocks yields several empirical results. First, the performance yardsticks indicate that the models show promise in explaining market valuations. Second, both book and earnings considerations are crucial in stock valuation. Finally, zero-dividend and negative earnings stocks present no particular valuation hurdles with reasonable goodness-of-fit statistics.

Note: Previously titled "Stock Valuation: The Role of Book Values and Earnings"

Suggested Citation

Ju, Nengjiu and Bakshi, Gurdip S., Book Values, Earnings, and Market Valuations (November 2002). AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=342680 or http://dx.doi.org/10.2139/ssrn.342680

Nengjiu Ju

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Gurdip S. Bakshi (Contact Author)

Fox School of Business ( email )

Department of Finance
Philadelphia, PA 19022
United States
215-204-6117 (Phone)
tuk40718@temple.edu (Fax)

HOME PAGE: http://https://sites.google.com/view/gurdipbakshi1

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