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A Comparison of Equity Valuation Models: Empirical Evidence from a Sample of UK Companies

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  • Ja Ryong Kim

    (PhD, University of Nottingham, UK)

Abstract

This paper aims to answer one main question: can the superior models in accounting field be superior in finance field? That is, can models that generate a better approximation to stock price also generate higher returns in the future? To answer this question, I conduct pricing errors analysis and time-series returns analysis. The most important finding is models that approximate stock price better tend to produce higher returns in the future; implying findings in accounting literature have practical implications to analysts and investors. The consistent rankings of models are observed throughout the research: forward earnings multiples perform the best, followed by fundamental valuation models and historical earnings multiples, and book value and sales multiples worst. However, multiples are ranked rather as a group in the UK. Interestingly, residual income models produce similar returns to forward earnings multiples, but the accuracy of their estimates varies depending on their terminal value assumptions.

Suggested Citation

  • Ja Ryong Kim, 2019. "A Comparison of Equity Valuation Models: Empirical Evidence from a Sample of UK Companies," European Journal of Multidisciplinary Studies Articles, Revistia Research and Publishing, vol. 4, May - Aug.
    • Handle: RePEc:eur:ejmsjr:469
    DOI: 10.26417/ejms-2019.v4i2-544
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    Cited by:

    1. Kekezi, Ana, 2019. "The impact of television advertising on the consumer behavior–the case of Albania," MPRA Paper 116061, University Library of Munich, Germany.

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