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Abstract
Value investors and finance academics have different methods for forecasting returns. Value investing focuses on purchasing assets that are undervalued relative to their intrinsic values, as determined through a framework designed to quantify the potential worth of underlying cash flows or liquidated assets. The Campbell-Shiller identity is a celebrated academic formula that connects current dividend yield to future returns, dividend growth, and dividend yield. The authors expand and apply the Campbell-Shiller relationship to earnings yield and earnings growth, and demonstrate that traditional value investing and the Campbell-Shiller identity provide the same investment advice illustrate their similarities in an example with two specific securities. Using sell-side projections, the authors show that the Campbell-Shiller formula is an effective screening tool that can be used in tandem with traditional value analysis.
TOPICS: Statistical methods, security analysis and valuation
- © 2015 Pageant Media Ltd
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