IDEAS home Printed from https://ideas.repec.org/a/taf/ufajxx/v55y1999i5p4-23.html
   My bibliography  Save this article

Valuing the Dow: A Bottom-Up Approach

Author

Listed:
  • Charles M.C. Lee
  • Bhaskaran Swaminathan

Abstract

We use a bottom-up approach to estimate the intrinsic value of the 30 stocks in the Dow Jones Industrial Average. In recent years, traditional aggregate market multiples (e.g., book to price, earnings to price) have had little predictive power for overall market returns. We show that an aggregate value-to-price ratio, in which “value” is based on a discounted residual income model, has statistically reliable predictive power, not only for returns on the Dow but also for returns on the S&P 500 Index and for a small-stock portfolio. We discuss the implications of these findings for tactical asset allocation strategies, the current level of the U.S. equity market, and the issue of equity valuation in general.

Suggested Citation

  • Charles M.C. Lee & Bhaskaran Swaminathan, 1999. "Valuing the Dow: A Bottom-Up Approach," Financial Analysts Journal, Taylor & Francis Journals, vol. 55(5), pages 4-23, September.
    • Handle: RePEc:taf:ufajxx:v:55:y:1999:i:5:p:4-23
    DOI: 10.2469/faj.v55.n5.2295
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.2469/faj.v55.n5.2295
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.2469/faj.v55.n5.2295?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ufajxx:v:55:y:1999:i:5:p:4-23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/ufaj20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.