Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates

Peter R. Joos; Joseph D. Piotroski; Suraj  Srinivasan

Article | Journal of Financial Economics

Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates

by Peter R. Joos, Joseph D. Piotroski and Suraj Srinivasan

Abstract

We use a dataset of sell-side analysts' scenario-based valuation estimates to examine whether analysts reliably assess the risk surrounding a firm's fundamental value. We find that the spread in analysts' state-side contingent valuations captures the riskiness of operations and predicts the absolute magnitude of future long-run valuation errors and changes in fundamentals. Similarly, asymmetry embedded in the analysts' scenario-based valuations conveys information about asymmetric risk-reward exposure and predicts skewness in future long-run valuation errors; however, embedded asymmetry is not correlated with changes in fundamentals. The results confirm that analysts' valuations reflect both state-contingent risk assessments and non-fundamental factors.

Keywords: valuation; analyst forecasts; scenarios; uncertainty; Risk and Uncertainty; Valuation; Forecasting and Prediction;

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Citation:

Joos, Peter R., Joseph D. Piotroski, and Suraj Srinivasan. "Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates." Journal of Financial Economics 121, no. 3 (September 2016): 645–663.

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Case | HBS Case Collection | July 2020

Driving Transformation at the Majid Al Futtaim Group

Suraj Srinivasan and Esel Çekin

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Keywords: Transformation; Organizational Change and Adaptation; Organizational Culture; Growth and Development Strategy; Retail Industry; United Arab Emirates; Middle East; Dubai;

Citation:

Srinivasan, Suraj, and Esel Çekin. "Driving Transformation at the Majid Al Futtaim Group." Harvard Business School Case 121-002, July 2020. View Details

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Can Analysts Assess Fundamental Risk and Valuation Uncertainty? An Empirical Analysis of Scenario-Based Value Estimates

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