Expected Return on Assets, Growth and Firms’ Risk Characteristics in Terms of Accounting Fundamentals

Finance

Speaker:Pengguo Wang, University of Exeter Business School
Date: Friday 3 February 2012
Time: 2.00 - 3.30 pm
Location: Streatham Court 0.28

Further details

Researchers often identify firm characteristics in accounting fundamentals that correlate with returns, then construct ‘factor-mimicking’ portfolios based on the characteristics, and then specify asset pricing models. In this talk, I will introduce a model, which identifies potential firms’ missing risk characteristics from existing literature, such as growth and (enterprise) forward earnings yield. It enables to estimate the expected return on assets and expected return on debt. It clarifies the association between equity return and (enterprise) book-to-market ratio. It also shows how leverage explains equity returns. Finally it sheds light on the relation between past return and expected return due to accounting conservatism.