A note on the valuation of asset management firms

Juha Joenväärä () and Bernd Scherer ()
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Juha Joenväärä: University of Oulu
Bernd Scherer: Deutsche Asset Management

Financial Markets and Portfolio Management, 2017, vol. 31, issue 2, No 3, 199 pages

Abstract: Abstract Market capitalization relative to assets under management is often used to value asset management firms. Huberman’s (2004) dividend discount model implies that cross-sectional variations in this metric are explained by cross-sectional differences in operating margins, and yet we find no evidence of this in our data set. We show that a superior model—inspired by the work of Berk and Green (2004)—includes also the level of fees as an explanatory variable. This approach dramatically increases the fit of our valuation model and casts doubt on the relevance of the so-called Huberman puzzle.

Keywords: Asset management firm; Valuation; Revenues; Operating margins (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11408-017-0287-y

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