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Equity Market Valuation: Assessing the Adequacy of Value Measures to Predict Index Returns

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  • Ron Guido

    (Australian Graduate School of Management, University of New South Wales, Sydney, NSW 2052.)

  • Kathleen Walsh

    (Australian Graduate School of Management, University of New South Wales, Sydney, NSW 2052.)

Abstract

Following the work of Lee, Myers and Swaminathan (1999), we develop robust tests of their intrinsic value measure, along with other traditional measures of value, for the Australian Stock Market. Specifically, we apply the tests to a broadly matched version of the Australian Asia Pacific Extra Liquid Series (APELS), which was recently introduced to Australia. A primary motivation for the paper was to assess the suggestion implied in the US study of a violation of capital market efficiency, where the use of publicly available information, namely a fundamental valuation measure using consensus analysts forecasts, could be used to predict returns. Our results do not support the conclusions reached by Lee, Myers and Swaminathan (1999). Possible reasons for this are the differing Market structures, the use of a different Index or the use of alternative statistical tests.

Suggested Citation

  • Ron Guido & Kathleen Walsh, 2001. "Equity Market Valuation: Assessing the Adequacy of Value Measures to Predict Index Returns," Australian Journal of Management, Australian School of Business, vol. 26(2), pages 163-196, December.
    • Handle: RePEc:sae:ausman:v:26:y:2001:i:2:p:163-196
    DOI: 10.1177/031289620102600205
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    References listed on IDEAS

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    Cited by:

    1. Afsaneh Bahrami & Abul Shamsuddin & Katherine Uylangco, 2018. "Out‐of‐sample stock return predictability in emerging markets," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(3), pages 727-750, September.

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