Discerning the Determinants of Common Stock Valuation: An Empirical Analysis

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Florya Chronicles of Political Economy
Volume:4 Issue:2
Discerning the Determinants of Common Stock Valuation: An Empirical Analysis

Discerning the Determinants of Common Stock Valuation: An Empirical Analysis

Authors : Salvatore Joseph TERREGROSSA

Pages : 9-30

View : 24 | Download : 9

Publication Date : 2018-10-01

Article Type : Research Paper

Abstract :This empirical study combines the fundamental intrinsic-value theory with the modern-portfolio theory to help discern the main determinants of common-stock valuation. This study differs from previous studies in that a simulated ex ante, controlled valuation-experiment is performed: for each dividend-paying firm in a cross-sectional sample alternately employed in a stock-valuation model are first, actual dividends; and then second, a measure representing the dividend-paying-ability of the firm. For each alternative strategy a set of results is generated, then generalised and a comparison is made to see which strategy works best. An analysis-ofvariance and a comparison-of-forecast-errors respectively indicate that a dividend-paying-ability measure insert ignore into journalissuearticles values(1); has greater informational content and insert ignore into journalissuearticles values(2); generally leads to better price appraisal when employed in a valuation model.
Keywords : Valuation, Dividend paying ability, CAPM, JEL Classification G 12

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