A Fair Value Approach to Forecasting Value versus Growth Returns

IF 1.1 4区 经济学 Q3 BUSINESS, FINANCE Journal of Portfolio Management Pub Date : 2022-12-31 DOI:10.3905/jpm.2022.49.2.162
Olga Lepigina, Kevin J. DiCiurcio, Ian Kresnak
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Abstract

Relative performance of value with respect to growth has been a subject of industry debate for many years and is a cornerstone of numerous equity allocation decisions. This article presents a framework for quantifying the extent of over or undervaluation of value relative to growth and for identifying the key factors driving performance. The authors construct a fair value measure of the value factor to growth factor price-to-book ratio using prior-period ratio of price/book, 10-year trailing inflation, 10-year real Treasury yield, equity volatility, and growth of corporate profits in a vector error-correction model (VECM). This is then extended to a robust forecasting model for future value and growth returns. Upon conducting an out-of-sample value versus growth historical return forecast, the authors conclude that this method is a significant improvement over the use of historical average as a future return estimation. This methodology offers an alternative robust solution to forecasting value versus growth returns that can be further applied to asset allocation decisions and risk management.
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预测价值与增长回报的公允价值方法
价值相对于增长的相对表现多年来一直是行业争论的主题,也是许多股权配置决策的基石。本文提出了一个框架,用于量化价值相对于增长的高估或低估程度,并确定驱动业绩的关键因素。作者使用向量误差校正模型(VECM)中的前期价格/账面比率、10年期滞后通货膨胀、10年实际国债收益率、股票波动率和企业利润增长,构建了价值因素与增长因素价格账面比率的公允价值衡量。然后将其扩展为未来价值和增长回报的稳健预测模型。在进行样本外价值与增长的历史回报预测后,作者得出结论,与使用历史平均值作为未来回报估计相比,该方法是一个显著的改进。该方法为预测价值与增长回报提供了另一种稳健的解决方案,可进一步应用于资产配置决策和风险管理。
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来源期刊
Journal of Portfolio Management
Journal of Portfolio Management Economics, Econometrics and Finance-Finance
CiteScore
2.20
自引率
28.60%
发文量
113
期刊介绍: Founded by Peter Bernstein in 1974, The Journal of Portfolio Management (JPM) is the definitive source of thought-provoking analysis and practical techniques in institutional investing. It offers cutting-edge research on asset allocation, performance measurement, market trends, risk management, portfolio optimization, and more. Each quarterly issue of JPM features articles by the most renowned researchers and practitioners—including Nobel laureates—whose works define modern portfolio theory.
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