Asymmetrical return on equity mean reversion and catering

Chen, An-Sing; Lin, Shih-Chieh

doi:10.1016/j.jbankfin.2010.09.009

Cited by 18 publications

(2 citation statements)

References 29 publications

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“…In addition, ROE can vary cyclically due to economic fluctuations. Economic cycles, such as recessions and expansions, can cause ROE to exhibit patterns of growth, decline, or stagnation over time [ 37 ]. These factors introduce unpredictability into the ROE's trajectory.…”

Section: Theoretical Framework and Literature Reviewmentioning

confidence: 99%

Time matters less: Variance partitioning of return on equity for banks in Uganda

Jitmaneeroj,

Ogwang

2023

Heliyon

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Section: Theoretical Framework and Literature Reviewmentioning

confidence: 99%

Time matters less: Variance partitioning of return on equity for banks in Uganda

Jitmaneeroj,

Ogwang

2023

Heliyon

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“…Mean reversion is an important concept in finance. It indicates that a variable tends to approach the mean value, regardless of whether the initial value of the variable is higher or lower than the long-term mean value (Chen and Lin 2011;Welc 2011;Canarella et al 2013;Holland 2018).…”

mentioning

confidence: 99%

Exploring the growth value equity valuation model with data visualization

Yeh

Liu

2023

Financ Innov

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The Growth Value Model (GVM) proposed theoretical closed form formulas consisting of Return on Equity (ROE) and the Price-to-Book value ratio (P/B) for fair stock prices and expected rates of return. Although regression analysis can be employed to verify these theoretical closed form formulas, they cannot be explored by classical quintile or decile sorting approaches with intuition due to the essence of multi-factors and dynamical processes. This article uses visualization techniques to help intuitively explore GVM. The discerning findings and contributions of this paper is that we put forward the concept of the smart frontier, which can be regarded as the reasonable lower limit of P/B at a specific ROE by exploring fair P/B with ROE-P/B 2D dynamical process visualization. The coefficients in the formula can be determined by the quantile regression analysis with market data. The moving paths of the ROE and P/B in the current quarter and the subsequent quarters show that the portfolios at the lower right of the curve approaches this curve and stagnates here after the portfolios are formed. Furthermore, exploring expected rates of return with ROE-P/B-Return 3D dynamical process visualization, the results show that the data outside of the lower right edge of the “smart frontier” has positive quarterly return rates not only in the t + 1 quarter but also in the t + 2 quarter. The farther away the data in the t quarter is from the “smart frontier”, the larger the return rates in the t + 1 and t + 2 quarter.

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A closed form formula for equity valuation model based on differential equation

Yeh

2024

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Asymmetrical return on equity mean reversion and catering

Cited by 18 publications

References 29 publications

Time matters less: Variance partitioning of return on equity for banks in Uganda

Time matters less: Variance partitioning of return on equity for banks in Uganda

Exploring the growth value equity valuation model with data visualization

A closed form formula for equity valuation model based on differential equation

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