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The informativeness of embedded value reporting to stock price

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  • Derrick W. H. Fung
  • David Jou
  • Ai Ju Shao
  • Jason J. H. Yeh

Abstract

This paper examines the informativeness of embedded value reporting to stock price by investigating the cross‐sectional variations in life insurers’ price to embedded value ratios. By conducting variance decomposition analysis on a dataset provided by Morgan Stanley, we find that 15 percent (40 percent) of the difference between embedded value and stock price can be explained by growth opportunities and future stock returns in the short (long) run. One‐third and two‐thirds of the unexplained variation are attributed to firm‐ and country‐specific factors, respectively. The above findings provide investors with a better understanding of the value relevance of embedded value reporting.

Suggested Citation

  • Derrick W. H. Fung & David Jou & Ai Ju Shao & Jason J. H. Yeh, 2021. "The informativeness of embedded value reporting to stock price," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5341-5376, December.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:4:p:5341-5376
    DOI: 10.1111/acfi.12761
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