RT Journal Article SR Electronic T1 Revising Equity Valuation with Tail Risk JF The Journal of Portfolio Management FD Institutional Investor Journals SP 100 OP 111 DO 10.3905/jpm.2017.43.4.100 VO 43 IS 4 A1 Maggie Copeland A1 Thomas Copeland A1 Timothy Copeland YR 2017 UL https://pm-research.com/content/43/4/100.abstract AB When VIX—a market index of volatility—increases, a firm’s response is to defer growth of investment. Simultaneously, the expected time to ruin, E(T), shortens, causing the firm’s value to decline more than commonly used valuation models suggest. The authors derive the characteristics of E(T) and revise valuation models that assume cash flows are growing perpetuities. They find that “value trap,” high-growth stocks, and “irrational exuberance” can be explained by incorporating E(T) into the traditional valuation models. Their empirical results show that the sensitivities of the 49 industry portfolios to the change in VIX are all significantly negative and undiversifiable and could be proxies for E(T).TOPICS: Analysis of individual factors/risk premia, statistical methods, fundamental equity analysis