Exploring the growth value equity valuation model with data visualization
Tóm tắt
The Growth Value Model (GVM) proposed theoretical closed form formulas consisting of Return on Equity (ROE) and the Price-to-Book value ratio (P/B) for fair stock prices and expected rates of return. Although regression analysis can be employed to verify these theoretical closed form formulas, they cannot be explored by classical quintile or decile sorting approaches with intuition due to the essence of multi-factors and dynamical processes. This article uses visualization techniques to help intuitively explore GVM. The discerning findings and contributions of this paper is that we put forward the concept of the smart frontier, which can be regarded as the reasonable lower limit of P/B at a specific ROE by exploring fair P/B with ROE-P/B 2D dynamical process visualization. The coefficients in the formula can be determined by the quantile regression analysis with market data. The moving paths of the ROE and P/B in the current quarter and the subsequent quarters show that the portfolios at the lower right of the curve approaches this curve and stagnates here after the portfolios are formed. Furthermore, exploring expected rates of return with ROE-P/B-Return 3D dynamical process visualization, the results show that the data outside of the lower right edge of the “smart frontier” has positive quarterly return rates not only in the t + 1 quarter but also in the t + 2 quarter. The farther away the data in the t quarter is from the “smart frontier”, the larger the return rates in the t + 1 and t + 2 quarter.
Tài liệu tham khảo
Adsera X, Vinolas P (2003) FEVA: A financial and economic approach to valuation. Financ Anal J 59(2):80–87
Canarella G, Miller SM, Nourayi MM (2013) Firm profitability: mean-reverting or random-walk behavior? J Econ Bus 66:76–97
Celik S (2012) Theoretical and empirical review of asset pricing models: a structural synthesis. Int J Econ Financ Issues 2(2):141–178
Chen AS, Lin SC (2011) Asymmetrical return on equity mean reversion and catering. J Bank Finance 35(2):471–477
Chen CH, Härdle WK, Unwin A (eds) (2007) Handbook of data visualization. Springer, New Yorks
Fernández P (2007) Valuing companies by cash flow discounting: ten methods and nine theories. Manag Financ 33(11):853–876
Francis J, Olsson P, Oswald DR (2000) Comparing the accuracy and explainability of dividend, free cash flow, and abnormal earnings equity value estimates. J Acc Res 38(1):45–70
Garza-Gomez X (2001) The information content of the book-to-market ratio. Financ Anal J 57(6):78–95
Gilson SC, Hotchkiss ES, Ruback RS (2000) Valuation of bankrupt firms. Rev Financ Stud 13(1):43–74
Gowlland C, Xiao Z, Zeng Q (2009) Beyond the central tendency: quantile regression as a tool in quantitative investing. J Portf Manag 35(3):106–119
Ho KC, Lee SC, Lin CT, Yu MT (2017) A comparative analysis of accounting-based valuation models. J Acc Audit Finance 32(4):561–575
Holland LC (2018) A flexible valuation model incorporating declining growth rates. Acc Finance Res 7(1):116–129
Koenker R, Hallock KF (2001) Quantile regression. J Econ Perspect 15(4):143–156
Kong D, Lin CP, Yeh IC, Chang W (2019) Building growth and value hybrid valuation model with errors-in-variables regression. Appl Econ Lett 26(5):370–386
Kramer O (2017) Genetic algorithm essentials (Vol. 679). Springer
Liao WC, Wang X (2012) Hedonic house prices and spatial quantile regression. J Hous Econ 21(1):16–27
Lie E, Lie HJ (2002) Multiples used to estimate corporate value. Financ Anal J 58(2):44–54
Liu Y-C, Yeh I-C (2014) Which drives abnormal returns, over- or under-reaction? Studies applying longitudinal analysis. Appl Econ 46(26):3224–3235
Liu J, Nissim D, Thomas J (2002) Equity valuation using multiples. J Acc Res 40(1):135–172
Lundholm R, Sloan R (2012) Equity valuation and analysis. McGraw-Hill/Irwin, New York
Mello M, Perrelli R (2003) Growth equations: a quantile regression exploration. Q Rev Econ Finance 43:643–667
Ohlson JA (2001) Earnings, book values, and dividends in equity valuation: an empirical perspective. Contemp Acc Res 18(1):107–120
Park YS, Lee JJ (2003) An empirical study on the relevance of applying relative valuation models to investment strategies in the Japanese stock market. Jpn World Econ 15(3):331–339
Rea A, Rea W (2014) Visualization of a stock market correlation matrix. Physica A 400:109–123
Richardson G, Tinaikar S (2004) Accounting based valuation models: what have we learned? Acc Finance 44(2):223–255
Rossi M (2016) The capital asset pricing model: a critical literature review. Glob Bus Econ Rev 18(5):604–617
Sweeney RJ (2014) Equivalent valuations in cash flow and accounting models. Rev Quant Financ Acc 42(1):29–49
Telea AC (2014) Data visualization: principles and practice. CRC Press, Boca Raton
Uribe JM, Guillen M (2020) Quantile regression for cross-sectional and time series data: applications in energy markets using R. Springer Nature, New York
Welc J (2011) Mean-reversion of net profitability among polish public companies. Acc Tax 3(2):53–64
Yeh I-C, Hsu T-K (2011) Growth value two-factor model. J Asset Manag 11(6):435–451
Yeh I-C, Hsu T-K (2014) Exploring the dynamic model of the returns from value stocks and growth stocks using time series mining. Expert Syst Appl 41(17):7730–7743
Yeh IC, Lien CH (2017) Growth and value hybrid valuation model based on mean reversion. Appl Econ 49(50):5092–5116
Yeh IC, Liu Y-C (2020) Estimating the distribution of enterprise values with quantile neural networks. Soft Comput 24(17):13085–13097
Yue X, Bai J, Liu Q, Tang Y, Puri A, Li K, Qu H (2019) sPortfolio: stratified visual analysis of stock portfolios. IEEE Trans Visual Comput Graph 26(1):601–610