From dividend yield to discounted cash flow: a history of UK and US equity valuation techniques

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From dividend yield to discounted cash flow: a history of UK and US equity valuation techniques

Author Info

Janette Rutterford

Abstract

This article explores how, as capital markets developed, equity valuation methods changed. The history of equity valuation is described, from its early origins during the South Sea Bubble, through the new issue boom of the nineteenth century and the stock market booms of the 1920s and 1950s. The moves from dividend yield and asset backing, to earnings yield and then P/E ratios are chronicled. The article compares developments in the UK and the US, in particular the relative slowness of the UK market to adopt US-pioneered techniques such as the P/E ratio, the concept of value versus growth stocks, and using intrinsic value to determine whether shares are cheap or dear. The article concludes with a discussion of the relatively slow introduction of the dividend discount model and of discounted cash flow as equity valuation tools on both sides of the Atlantic.

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Article provided by Taylor and Francis Journals in its journal Accounting, Business and Financial History.

Volume (Year): 14 (2004)
Issue (Month): 2 (July)
Pages: 115-149
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Handle: RePEc:taf:acbsfi:v:14:y:2004:i:2:p:115-149

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Faulhaber, Gerald R & Baumol, William J, 1988. "Economists as Innovators: Practical Products of Theoretical Research," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 577-600, June. [Downloadable!] (restricted)

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Toms, Steven, 2008. "Calculating Profit: A Historical Perspective on the Development of Capitalism," The York Management School Working Papers 41, The York Management School, University of York. [Downloadable!]

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This page was last updated on 2009-11-14.

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