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Equity Valuation and Accounting Numbers: Applying Zhang (2000) and Zhang and Chen (2007) models to Brazilian Market

Author

Listed:
  • Fernando Caio Galdi

    (Fundação Instituto Capixaba de Pesq. em Contabilidade, Economia e Finanças)

  • Rodrigo Falco Lopes

Abstract

This paper investigates how accounting variables explain cross-sectional stocks returns in Brazilian capital markets. The analysis is based on Zhang (2000) and Zhang and Chen (2007) models. These models predict that stock returns are a function of net income, change in profitability, invested capital, changes in opportunity growths and discount rate. Generally, the empirical results for the Brazilian capital market are consistent with the theoretical relations that models describe, similarly to the results found in the US. Using different empirical tests (pooled regressions, Fama-Macbeth and panel data) the results and coefficients remain similar, what support the robustness of our findings.

Suggested Citation

  • Fernando Caio Galdi & Rodrigo Falco Lopes, 2011. "Equity Valuation and Accounting Numbers: Applying Zhang (2000) and Zhang and Chen (2007) models to Brazilian Market," Brazilian Review of Finance, Brazilian Society of Finance, vol. 9(1), pages 131-157.
    • Handle: RePEc:brf:journl:v:9:y:2011:i:1:p:131-157
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    More about this item

    Keywords

    Stock return; accounting numbers; equity valuation;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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