IDEAS home Printed from https://ideas.repec.org/a/wsi/jfmmix/v08y2020i02ns2282717x20500024.html
   My bibliography  Save this article

Do Fundamentals Drive Relative Valuation? Evidence From Global Stock Market Indices

Author

Listed:
  • KOMLA AGUDZE

    (Baum Tenpers Research, 23401 Lagos, Nigeria)

  • OYAKHILOME IBHAGUI

    (Baum Tenpers Research, 23401 Lagos, Nigeria)

Abstract

In this paper, we use aggregate-level data from global, developed and emerging markets to empirically examine how fundamentals of publicly listed firms drive their relative valuation multiples. First, we find that, in each market, there is a dynamic link between fundamentals and relative valuation: relative valuation multiples are negatively linked to their past, suggesting that overvalued markets, based on high relative valuation multiples, often experience corrections that subsequently lower their relative valuation multiples, making them less overvalued, fairly valued or even undervalued, compared with previous periods. Secondly, we document that fundamentals do indeed have significant effects on relative valuation multiples. This reveals that fundamentals are an important driver of relative valuation multiples at the aggregate level in the stock market. Hence, practitioners should not ignore outlook for relative valuation multiples of aggregate stock market that is deduced from fundamentals.

Suggested Citation

  • Komla Agudze & Oyakhilome Ibhagui, 2020. "Do Fundamentals Drive Relative Valuation? Evidence From Global Stock Market Indices," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-42, December.
    • Handle: RePEc:wsi:jfmmix:v:08:y:2020:i:02:n:s2282717x20500024
    DOI: 10.1142/S2282717X20500024
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S2282717X20500024
    Download Restriction: Open Access
    File URL: https://libkey.io/10.1142/S2282717X20500024?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.

    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:wsi:jfmmix:v:08:y:2020:i:02:n:s2282717x20500024. 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: Tai Tone Lim (email available below). General contact details of provider: https://www.worldscientific.com/worldscinet/jfmmi .

    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.