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  • 2021
  • Working Paper
  • HBS Working Paper Series

Expected Stock Returns Worldwide: A Log-Linear Present-Value Approach

By: Akash Chattopadhyay, Matthew R. Lyle and Charles C.Y. Wang
  • Format:Print
  • | Language:English
  • | Pages:81 
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Abstract

This study provides the first large-scale study of the performance of expected-return proxies (ERPs) internationally. Analyst-forecast-based ICCs are sparsely populated and not robustly associated with future returns. Earnings-model-forecast-based ICCs are well-populated, but are unreliable outside the U.S. We adapt and extend the log-linear and present-value (LPV) framework—combining an accounting valuation anchor, its expected growth, and market prices—for estimating ERPs internationally, and implement a correction for the use of stale accounting data. An LPV ERP anchored on the book value of equity is positively associated with future returns in 26 of 29 equity markets, and largely subsumes the predictive ability of a broad set of firm characteristics previously shown to be associated with expected returns.

Keywords

Expected Returns; Discount Rates; Fundamental Valuation; Present Value; Information Quality; International Equity Markets; Implied Cost Of Capital; Investment Return; Equity; Markets; Global Range

Citation

Chattopadhyay, Akash, Matthew R. Lyle, and Charles C.Y. Wang. "Expected Stock Returns Worldwide: A Log-Linear Present-Value Approach." Harvard Business School Working Paper, No. 18-079, February 2018. (Revised January 2021. Conditionally Accepted. The Accounting Review.)
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About The Author

Charles C.Y. Wang

Accounting and Management
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Related Work

    • 2021
    • Faculty Research

    Expected Stock Returns Worldwide: A Log-Linear Present-Value Approach

    By: Akash Chattopadhyay, Matthew R. Lyle and Charles C.Y. Wang
Related Work
  • Expected Stock Returns Worldwide: A Log-Linear Present-Value Approach By: Akash Chattopadhyay, Matthew R. Lyle and Charles C.Y. Wang
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