Co-movement of Price and Intrinsic Value - Does Accounting Information Matter?

52 Pages Posted: 21 Feb 2021

See all articles by Oliver Mehring

Oliver Mehring

Paderborn University; TRR 266 Accounting for Transparency

Per Olsson

ESMT European School of Management and Technology

Soenke Sievers

Paderborn University

Christian Sofilkanitsch

Paderborn University; TRR 266 Accounting for Transparency

Date Written: December 14, 2020

Abstract

We investigate the co-movement of stock prices and intrinsic value estimates focusing on the estimation of risk. We apply risk measurements based on a) market and b) accounting data. We find that price and value co-move from 1983 to 2014 on an index-level using accounting-based risk measurement in contrast to the market-based risk measurement. Our findings have two vital implications. First, the lack of co-movement documented in prior research can alternatively be explained by the applied valuation model (market vs. accounting), rather than investors trading behavior (e.g., speculation). Second this result provides strong empirical evidence that accounting information is useful for equity investors. Finally, we analyze the role of accounting conservatism regarding co-movement. We document that on an index level conservative reporting harms the co-movement of price and value. However, conditioning on a co-movement of price and value, more conservatism is helpful for moving prices back to fundamentals.

Keywords: fundamental analysis; co-movement; risk measurement; accounting beta

JEL Classification: C32; G12; G14; M41

Suggested Citation

Mehring, Oliver and Olsson, Per and Sievers, Soenke and Sofilkanitsch, Christian, Co-movement of Price and Intrinsic Value - Does Accounting Information Matter? (December 14, 2020). Available at SSRN: https://ssrn.com/abstract=3748644 or http://dx.doi.org/10.2139/ssrn.3748644

Oliver Mehring (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Per Olsson

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

Soenke Sievers

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

HOME PAGE: http://www.upb.de/accounting

Christian Sofilkanitsch

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

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