Under the assumption that the aggregate capital market is efficient, we can use stock prices to replace the intrinsic values in Eqs. ( 4.3 ), ( 4.9 ) or ( 4.12 ) to run cross-sectional or industry panel data regressions to forecast future earnings of individual firms. We can then use the forecast earnings to value the equity shares of individual firms and predict one-period ahead returns.

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Incorporate Market Information in Valuation of Individual Firms and Predicting Returns

  • Pengguo Wang

摘要

Under the assumption that the aggregate capital market is efficient, we can use stock prices to replace the intrinsic values in Eqs. ( 4.3 ), ( 4.9 ) or ( 4.12 ) to run cross-sectional or industry panel data regressions to forecast future earnings of individual firms. We can then use the forecast earnings to value the equity shares of individual firms and predict one-period ahead returns.