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https://hdl.handle.net/2142/87435
Description
Title
Three Essays in Capital Markets Research
Author(s)
Lee, Sang Woo
Issue Date
2005
Doctoral Committee Chair(s)
Louis K.C.Chan
Department of Study
Finance
Discipline
Finance
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Language
eng
Abstract
The third essay estimates firms' intrinsic value using the accounting-based valuation model and examines the predictive power of the estimated value for future stock returns. The key empirical issue of the model is to estimate future residual income. While most research has relied on the earnings forecasts of security analysts for future residual income, we attempt to estimate firms' future residual income using their past earnings history. This approach is based on our finding that firms exhibit persistence over time in their earnings (measured by ROA or ROE). We find that the resulting residual income-based value-to-price ratio helps to explain stocks even after controlling for book-to-market ratio effects.
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