Equity Markets, Valuation, and Analysis

Cover
Title Page
Copyright
Contents
Acknowledgments
About the Editors
About the Chapter Authors
CHAPTER 1 Equity Markets, Valuation, and Analysis: An Overview
	Introduction
	About This Book
		Purpose of the Book
		Distinguishing Features
		Intended Audience
	Structure of the Book
		Part One: Background
		Part Two: Valuation and Analysis
		Part Three: Equity Investment Models and Strategies
		Part Four: Special Equity Topics
	Summary and Conclusions
	References
PART ONE Background
	CHAPTER 2 Ownership Structure and Stock Classes
		Introduction
		Single‐Class Common Equity
			Cross‐Listed Stocks
			Depositary Receipts
			Dual Listings
			Tracking Stock
		Dual‐Class Common Equity
			Discovery Inc.: A Case Study
		Summary And Conclusions
		Discussion Questions
		References
	CHAPTER 3 Equity Markets and Performance
		Introduction
		The Equity Market and the Economy
		Market Indicators
		Good Markets – Liquidity
		Good Markets – Efficiency
			Weak Form Efficiency
			Semi‐Strong Form Efficiency
			Strong Form Efficiency
			Studies and Implications Regarding Market Efficiency
			Good Markets – Trust and Confidence
		Information Disclosure
		Enforcement
		Monetary Policies
		Investments: Comparative Risk and Return
		Stocks Versus Bonds: the Issuer's Perspective
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 4 Securities Regulation
		Introduction
		Trading Rules and Rules Pertaining to Broker‐Dealer Conduct
			Insider Trading Rules
			Market Manipulation Rules
			False Disclosure Rules
			Broker‐Agency Conflict Rules
		Surveillance
		Enforcement
		Impact of Trading Rules and Surveillance on Corporate Outcomes
			Market Manipulation and M&As
			Market Manipulation and Innovation
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 5 Investor Psychology and Equity Market Anomalies
		Introduction
		Investor Psychology: Bounded Rationality
			Information Limitations
			Cognitive Limitations
			Time Limitations
		Investor Psychology: Prospect Theory
			Reference Wealth
			Risk versus Certainty
			Other Effects of Prospect Theory
		Equity Market Anomalies: Violations of the EMH
			Violations of the Weak Form EMH
			Violations of the Semi‐Strong Form EMH
			Violations of the Strong Form EMH and Other Critiques of the EMH
		Summary and Conclusions
		Discussion Questions
		References
PART TWO Valuation and Analysis
	CHAPTER 6 Financial Statement Analysis and Forecasting
		Introduction
		Background
		Technical Analysis–Based Forecasting
		Time Series–Based Forecasting
		Fundamental Analysis–Based Forecasting
		Process of Analyzing Financial Statements
		Evidence on the Usefulness of Financial Statement Analysis
		Security Analysts and Financial Statement Analysis
		Limitations of Using Financial Statement Analysis in Forecasting
		Summary and Conclusion
		Discussion Questions
		References
	CHAPTER 7 Fundamentals of Equity Valuation
		Introduction
		What is Equity Valuation?
			Fundamental Analysis
			Understanding Financial Statements
			Understanding Economic and Regulatory Environment
			Equity Valuation Objectives
			Who is Interested in Equity Valuation?
			Equity Valuation Paradigm
			Equity Valuation Approaches
		Free Cash Flow–Based Valuation
			Free Cash Flow to the Firm Model
			Free Cash Flow to Equity Models
		Dividend‐Based Valuation
			The Constant‐Growth DDM
			Multistage Growth DDM
		Market‐Based Valuation: Multiples and Ratios
		Modeling the Required Asset Return
		Option Theory–Based Valuation
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 8 Company Analysis
		Introduction
		Three Steps Linking Business Activities to Equity Prices
		Accounting Analysis
		Fundamental Analysis
			Profitability
			Economics of Profitability
			Other Profitability Components
			Growth
			Liquidity, Solvency, and Financial Distress
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 9 Technical Analysis
		Introduction
		Background
			Link Between Technical and Fundamental Investment Philosophies
			Dow Theory: A Foundation
		Pulling It All Together: Fundamentals, Biases, and Trends
			Trend Following
			Moving Averages
			Momentum Investing
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 10 Discounted Dividend Valuation
		Introduction
		The General Model
		Constant Growth or Gordon Model
		Multistage Models
			The Two‐Stage Model
			The H‐Model
			The Three‐Stage Model
		Stochastic Models
			Binomial Model
			Trinomial Model
		Uses of Ddms
		Empirical Tests of the Dividend Discount Model
		Summary and Conclusions
		Discussion Questions
		Referencesxs
	CHAPTER 11 Free Cash Flow Valuation
		Introduction
		General Approach to FCF Analysis
		Four Special Cases of FCF Valuation Approaches
			Weighted Average Cost of Capital (WACC)
			Adjusted Present Value (APV)
			Capital Cash Flow (CCF)
			Free Cash Flow to Equity (FCFE)
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 12 Market‐based Valuation
		Introduction
		Widely Used Valuation Multiples and Valuation Steps
		Selecting Comparable Firms
		The Efficacy of Different Multiples in Valuation
		Common Factors Determining Different Multiples
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 13 Residual Income Valuation
		Introduction
		History and Foundations of Residual Income
		Computing Residual Income
		Equity Valuation Using Residual Income
		Numerical Example
		Applying RI to Equity Valuation
		Evaluation and Critique of Residual Income
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 14 Private Company Valuation
		Introduction
		DCF Valuation Methods for Private Companies
			The Capital Cash Flow Method
			The Adjusted Present Value Method
			The Free Cash Flow Method
			Scenario Analysis in DCF Valuation Methods
		The Comparable Firms Approach in Private Company Valuation
			The Choice of Valuation Metrics in the Comparable Firms Approach
			The Choice of Comparable Companies
		The Venture Capital Method for High‐Growth Private Companies
			Exit Valuation
			Target Rate of Return and Discounted Exit Valuation
			The Venture Capitalist's Expected Retention Ratio
			The Venture Capitalist's Required Equity Stake
		Option Valuation for Private Companies
		Summary and Conclusions
		Discussion Questions
		References
PART THREE Equity Investment Models and Strategies
	CHAPTER 15 Equity Investing Strategies
		Introduction
		Value Investing
		Growth Investing
		Growth at a Reasonable Price
		Income Investing
			Dividends
		Index Investing
		Quantitative Trading
		Technical Analysis
		Options Strategies
		Esg Investing
		Summary And Conclusions
		Discussion Questions
		References
	CHAPTER 16 Factor Investing
		Introduction
		History
		Factors of Prominence
			Value
			Size
			Momentum
		Recent Factor Discoveries
			Low Volatility
			Profitability (Quality)
		Portfolio Implementation Considerations
			Factor Definitions
			Sector Or Industry Weights
			Multi‐Factor Portfolios
			Top‐Down Versus Bottom‐Up Multi‐Factor Construction
			From Theory To Practice
		Summary And Conclusions
		Discussion Questions
		References
	CHAPTER 17 Smart Beta Strategies versus Alpha Strategies
		Introduction
		What is Smart Beta?
		Empirical Evidence from Factor Investing and Smart Beta Studies
		Recent Empirical Evidence from the U.S. ETF Market
			Data
			Pairwise Comparisons Of Mean Returns And Sharpe Ratios
		Summary And Conclusions
		Discussion Questions
		References
	CHAPTER 18 Activist And Impact Investing
		Introduction
		Methods Of Activism
			Shareholder Proposals
			Public Attacks
			Proxy Fights
			Private Negotiation (Jawboning)
		Institutional Activists
			Public Pension Funds
			Insurance Companies, Banks, And Mutual Funds
			Hedge Funds
		Individual Activists
			High Profile Activists
			Gadflies
		Impact Investing
			ESG Principles
			Effectiveness of Impact Investing
			Social Impact Bonds
			Green Bonds
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 19 Socially Responsible Investing
		Introduction
		A Brief History of SRI in the United States
		Esg Growth in Pooled Investment Vehicles
		Responsible Investing Growth by Institutional Investors
		The Performance of Sustainable Investments
		Lack of Guidelines on Voluntary Nonfinancial Disclosure
		ESG Disclosure and Asset Manager Valuation Methodology
		ESG Disclosure Lacks Usefulness
		Methods for Operationalizing ESG Issues
			Divestment
			Negative (Exclusionary) Screening
			Positive/Best‐in‐class
			Active Ownership
			Thematic Investing
			Impact Investing
		Fiduciary Duty and ESG Investing
			ESG Integration
		ESG Integration for Equities
		Considerations for Integrating Esg
		Case Study
		Summary And Conclusions
		Discussion Questions
		References
	CHAPTER 20 Pooled Investment Vehicles
		Introduction
		Open‐End Mutual Funds
			Share Creation and Redemption Process
			Costs Associated with Open‐End Mutual Funds
		Closed‐End Funds
			Structure and Trading
			Sources of Return and Tax Implications
		Unit Investment Trusts
			Structure and Trading
			Sources of Return and Tax Implications
		Exchange‐Traded Funds
			Basic Overview of ETF Share Creation and Redemption
			Purchase/Sale of ETF Shares by Investors
			Related Benefits of the ETF Structure
		Summary and Conclusions
		Discussion Questions
		References
PART FOUR Special Equity Topics
	CHAPTER 21 Investing in Private Equity
		Introduction
		Performance of PE Funds
		Performance Persistence
		Factors Driving PE Performance
		Risk Factors of PE Funds
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 22 Investing in Emerging Markets
		Introduction
		Capital Flows to Emerging Markets
		Issues Related to Capital Market Integration
			Return Characteristics
			Capital Market Integration
			Cultural Distance and Stock Market Returns
			Emerging Asset Classes
		Institutional Strategies for Better Investment Decisions
			Understanding the Value of a Relational Strategy
			Relevance of an Infrastructure‐building Strategy
			Focusing on a Sociocultural Bridging Strategy
		Political Connections, Investment Decisions, and Performance
		Corporate Governance and Performance
		Valuation Practices in Emerging Markets
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 23 Disclosure Regulations in Emerging Economies and Their Impact on Equity Markets
		Introduction
		Various Disclosure Regulation Approaches
			Voluntary Disclosure
			Mandatory Disclosure
			Comply or Explain Disclosure
		Environmental and CSR Disclosure in Emerging Markets
			Disclosure in China
			Disclosure in Other Emerging Markets
		Insider Trading, Disclosures, and Related Regulation
			Insider Trading in China
			Insider Trading in India
			Insider Trading in Thailand
		Information Disclosure Through Private In‐House Meetings
			Regulatory Environment: Private In‐house Meetings
			Empirical Evidence: Private In‐house Meetings
		Summary and Conclusions
		Discussion Questions
		References
	CHAPTER 24 Equity Crowdfunding Investments
		Introduction
		Types of Crowdfunding
		The Jobs Act of 2012
			Who Can Invest?
			Jobs 3.0
		Crowdfund Investment Opportunities and Incentives
		Crowdfund Investment Challenges and Disincentives
		Academic Research
		Summary and Conclusions
		Discussion Questions
		References
Discussion Questions and Answers (Chapters 2–24)
Index
EULA