A structured financial statement analysis and the direct prediction of stock prices in Korea
|Journal / Publication||Asia-Pacific Financial Markets|
|Publication status||Published - 2001|
|Link to Scopus||https://www.scopus.com/record/display.uri?eid=2-s2.0-52549120762&origin=recordpage|
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.
- Financial statement analysis, Intrinsic value prediction, Korean evidence, Trading strategy
Asia-Pacific Financial Markets, Vol. 8, No. 2, 2001, p. 87-117.
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal › peer-review
Chung, HY & Jeong-Bon, K 2001, 'A structured financial statement analysis and the direct prediction of stock prices in Korea', Asia-Pacific Financial Markets, vol. 8, no. 2, pp. 87-117.
Chung, H. Y., & Jeong-Bon, K. (2001). A structured financial statement analysis and the direct prediction of stock prices in Korea. Asia-Pacific Financial Markets, 8(2), 87-117.