Pricing deviation, misvaluation comovement, and macroeconomic conditions

Chang, Eric C.; Luo, Yan; Ren, Jinjuan

doi:10.1016/j.jbankfin.2013.08.005

Cited by 21 publications

(23 citation statements)

References 34 publications

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“…We further form a misvaluation factor and find that misvaluation comovement and systematic misvaluation exist in the Chinese market. A comparison of Page 2 of 50 A c c e p t e d M a n u s c r i p t our results with those of Chang et al (2013) reveals that the misvaluation effect is much stronger in the Chinese market than in the U.S market. This evidence is consistent with the notion that the Chinese market is much less efficient than the U.S. market.…”

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confidence: 63%

Section: Page 6 Of 50mentioning

confidence: 95%

“…First, we compare our results with those of Chang et al (2013) based on U.S. market data, and find that misvaluation has stronger return predictability in the Chinese stock market than in the U.S. market. Going long on stocks in the most undervalued decile and short on stocks in the most overvalued decile yields an average return of 1.822% per month in the Chinese market, compared to only 1.234% in the U.S. market (Chang et al, 2013). In the cross-sectional regression, a one standard deviation increase in would reduce future stock returns by 0.46% in the Chinese market but only by 0.33% in the U.S. market based on the results of Chang et al (2013).…”

Section: Page 6 Of 50mentioning

confidence: 95%

“…We follow Rhodes-Kropf et al (2005) and Chang et al (2013) in measuring the intrinsic value of each stock based on book value, net income and leverage ratio, and define stock misvaluation, or , as the difference between a stock's observed market value and its intrinsic value. A low (negative) indicates undervaluation of the stock, while a high (positive) suggests overvaluation.…”

Section: Introductionmentioning

confidence: 99%

“…We measure individual stocks' misvaluation based on their pricing deviation from fundamental values, following Rhodes-Kropf et al (2005) and Chang et al (2013), and find that the measure has strong and robust return predictive power in the Chinese market. We further form a misvaluation factor and find that misvaluation comovement and systematic misvaluation exist in the Chinese market.…”

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confidence: 99%

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Section: Page 6 Of 50mentioning

confidence: 95%

Section: Page 6 Of 50mentioning

confidence: 95%

Section: Introductionmentioning

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Market frictions and momentum premium: does stock mispricing matter? Evidence from China

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Ali,

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2023

J Corp Accounting Finance

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This study examines if both market frictions and stock mispricing provide better explanation of the momentum premium, compared to the conventional asset pricing models. Using a large sample of 3727 companies listed on the Chinese stock market, we show that winner stocks are associated with larger market frictions and stock mispricing. Our findings reveal new empirical evidence that momentum premium can be attributed to market friction risk‐factor but additionally explained by a mispricing component.

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Uncertainty in firm valuation and a cross-sectional misvaluation measure

et al. 2023

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The degree of uncertainty associated with the value of a company plays a relevant role in valuation analysis. We propose an original and robust methodology for company market valuation, which replaces the traditional point estimate of the conventional Discounted Cash Flow model with a probability distribution of fair values that convey information about both the expected value of the company and its intrinsic uncertainty. Our methodology depends on two main ingredients: an econometric model for company revenues and a set of firm-specific balance sheet relations that are estimated using historical data. We explore the effectiveness and scope of our methodology through a series of statistical exercises on publicly traded U.S. companies. At the firm level, we show that the fair value distribution derived with our methodology constitutes a reliable predictor of the company’s future abnormal returns. At the market level, we show that a long-short valuation (LSV) factor, built using buy-sell recommendations based on the fair value distribution, contains information not accessible through the traditional market factors. The LSV factor significantly increases the explanatory and the predictive power of factor models estimated on portfolios and individual stock returns.

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Pricing deviation, misvaluation comovement, and macroeconomic conditions

Cited by 21 publications

References 34 publications

Misvaluation comovement, market efficiency and the cross-section of stock returns: Evidence from China

Misvaluation comovement, market efficiency and the cross-section of stock returns: Evidence from China

Market frictions and momentum premium: does stock mispricing matter? Evidence from China

Uncertainty in firm valuation and a cross-sectional misvaluation measure

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