publication . Research . 2011

Conservatism in Corporate Valuation

Bach, Christian;
Restricted English
  • Published: 01 Jan 2011
  • Publisher: Institut for Økonomi, Aarhus Universitet
  • Country: Denmark
Using a CCAPM based risk adjustment model, consistent with general asset pricing theory, I perform corporate valuations of a large sample of stocks listed on NYSE, AMEX and NASDAQ. The model is different from the standard CAPM model in the sense that it discounts forecasted residual income for risk in the numerator rather than trough the cost of equity, in the denominator. Further, the risk adjustment is based on assumptions about the time series properties of residual income return and consumption rather than historical returns. I compare the pricing performance of the model with the standard CAPM based valuation model, both considering the absolute valuation e...
free text keywords: Accounting beta, corporate valuation, Compustat, cost of capital, covariance risk, CRSP, I/B/E/S, residual income, risk adjusted discounting, CAPM, CCAPM
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