A framework for value investing

Seungmin Chee, Richard Sloan and Aydin Uysal
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Seungmin Chee: Korea University, Korea
Richard Sloan: University of California at Berkeley, USA
Aydin Uysal: Menta Capital, USA

Australian Journal of Management, 2013, vol. 38, issue 3, 599-633

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 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: Forecast horizon; prospective yield; value investing (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:38:y:2013:i:3:p:599-633

DOI: 10.1177/0312896213510715

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