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A framework for value investing

Author

Listed:
  • Seungmin Chee

    (Korea University, Korea)

  • Richard Sloan

    (University of California at Berkeley, USA)

  • Aydin Uysal

    (Menta Capital, USA)

Abstract

This paper provides a framework for defining, formulating and evaluating value investment strategies. We define the relative value of an investment in terms of the prospective yield implied by the investment’s current price and expected future cash flows. We develop an intuitive and parsimonious approach for estimating the prospective yield by aggregating cum-dividend expected earnings over a suitable forecast horizon. We also adapt this approach to construct a realized yield metric that can be used as a more direct alternative to realized security returns in evaluating value strategies. We illustrate how our framework can be used to evaluate existing measures of value, construct improved measures of value, and attribute the returns to an investment strategy to value versus other sources.

Suggested Citation

  • Seungmin Chee & Richard Sloan & Aydin Uysal, 2013. "A framework for value investing," Australian Journal of Management, Australian School of Business, vol. 38(3), pages 599-633, December.
    • Handle: RePEc:sae:ausman:v:38:y:2013:i:3:p:599-633
    DOI: 10.1177/0312896213510715
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    References listed on IDEAS

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    Cited by:

    1. Karen Benson & Peter M Clarkson & Tom Smith & Irene Tutticci, 2015. "A review of accounting research in the Asia Pacific region," Australian Journal of Management, Australian School of Business, vol. 40(1), pages 36-88, February.
    2. Nadisah Zakaria & Fariza Hashim, 2017. "Emerging Markets: Evaluating Graham's Stock Selection Criteria on Portfolio Return in Saudi Arabia Stock Market," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 453-459.
    3. Shumi Akhtar, 2018. "Dividend payout determinants for Australian Multinational and Domestic Corporations," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(1), pages 11-55, March.
    4. Benson, Karen & Faff, Robert & Smith, Tom, 2015. "Injecting liquidity into liquidity research," Pacific-Basin Finance Journal, Elsevier, vol. 35(PB), pages 533-540.
    5. Shumi Akhtar, 2018. "Dividend policies across multinational and domestic corporations – an international study," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(3), pages 669-695, September.

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