Are stock prices driven by expected growth rather than discount rates? Evidence based on the COVID-19 crisis
Autor: | Heinz Zimmermann, Pascal Böni |
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Přispěvatelé: | Department of Finance, Research Group: Accounting |
Jazyk: | angličtina |
Rok vydání: | 2021 |
Předmět: |
Economics and Econometrics
050208 finance valuation multiples Coronavirus disease 2019 (COVID-19) Gordon model Strategy and Management 05 social sciences Growth model stock market valuation Stock return COVID-19 stock market downturn 0502 economics and business Financial crisis Economics Econometrics Capital asset pricing model Original Article Growth rate 050207 economics Business and International Management Finance Stock (geology) Valuation (finance) |
Zdroj: | Risk Management, 23, 1-29. Palgrave Macmillan Risk Management |
ISSN: | 1743-4637 1460-3799 |
Popis: | We use the Gordon (Rev Econ Stat 41(2):99-105, 1959) constant growth model to gauge the effects from innovations in implied growth versus discount rates. During the COVID-19 downturn and the Global Financial Crisis (GFC), stock returns were largely affected by a change in the long-run implied growth rate and only to a lesser extent by a change in discount rate, the latter typically used to explain stock returns in the classical asset pricing literature. We reach this conclusion by using ordinary least-squares (OLS) regressions of stock returns on the unobservable Gordon factors, which we estimate from firm-level valuation ratios D/P, P/E, and P/B. The effects from a decrease in implied growth outweigh those from an increase in discount rate by a factor of approximately 1.6 to 1.7. Also, firms with a decrease in implied growth show a stock return that is approximately 6.6% more negative than that of firms with no decrease in implied growth. Investors can infer valuable information from the joint interpretation of underlying market fundamentals as derived from the Gordon model. |
Databáze: | OpenAIRE |
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