A structured financial statement analysis and the direct prediction of stock prices in Korea
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
Author(s)
Detail(s)
Original language | English |
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Pages (from-to) | 87-117 |
Journal / Publication | Asia-Pacific Financial Markets |
Volume | 8 |
Issue number | 2 |
Publication status | Published - Jun 2001 |
Externally published | Yes |
Link(s)
Abstract
Using a large sample of firms listed on the Korea Stock Exchange, this paper evaluates the usefulness of a structured, programmable financial statement analysis for investment decisions. In doing so, we develop a firm valuation model which links a firm's market value with fundamental variables such as the ability of a firm to generate cash flows, growth potentials, and risk. We predict a firm's intrinsic value directly from an extensive set of financial statement variables which proxy for the theoretical variables implied by the model. We then construct a series of trading strategies with zero net investment (called D-strategies) on the basis of D-values which measure percentage differences between predicted intrinsic values and observed market values. We observe that the market-adjusted and size-adjusted (hedge-portfolio) returns to the most conservative D-strategy turn out to be in the order of 16.92% and 11.44%, respectively, for the 12-month holding period. When our sample is stratified into two sub-samples based on firm size, the D-strategy yields higher excess return for the small-firm sub-sample than for the large-firm sub-sample. The above evidence, taken as a whole, strongly indicates that one can construct a profitable trading strategy by directly predicting intrinsic values through a structured financial statement analysis such as ours. © 2001 Kluwer Academic Publishers.
Research Area(s)
- Financial statement analysis, Intrinsic value prediction, Korean evidence, Trading strategy
Citation Format(s)
A structured financial statement analysis and the direct prediction of stock prices in Korea. / Chung, Hay Y.; Jeong-Bon, Kim.
In: Asia-Pacific Financial Markets, Vol. 8, No. 2, 06.2001, p. 87-117.
In: Asia-Pacific Financial Markets, Vol. 8, No. 2, 06.2001, p. 87-117.
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review