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Undervalued stock

About: Undervalued stock is a(n) research topic. Over the lifetime, 42 publication(s) have been published within this topic receiving 2137 citation(s).
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Abstract: Goyal and Welch (2007) argue that the historical average excess stock return forecasts future excess stock returns better than regressions of excess returns on predictor variables. In this article, we show that many predictive regressions beat the historical average return, once weak restrictions are imposed on the signs of coefficients and return forecasts. The out-of-sample explanatory power is small, but nonetheless is economically meaningful for mean-variance investors. Even better results can be obtained by imposing the restrictions of steady-state valuation models, thereby removing the need to estimate the average from a short sample of volatile stock returns. (JEL G10, G11) Towards the end of the last century, academic finance economists came to take seriously the view that aggregate stock returns are predictable. During the 1980s, a number of papers studied valuation ratios, such as the dividend-price ratio, earnings-price ratio, or smoothed earnings-price ratio. Value-oriented investors in the tradition of Graham and Dodd (1934) had always asserted that high valuation ratios are an indication of an undervalued stock market and should predict high subsequent returns, but these ideas did not carry much weight in the academic literature until authors such as Rozeff (1984), Fama and French (1988), and Campbell and Shiller (1988a, 1988b) found that valuation ratios are positively correlated with subsequent returns and that the implied predictability of returns is substantial at longer horizons. Around the same time, several papers pointed out that yields on short- and long-term treasury and corporate bonds are correlated with subsequent stock returns (Fama and Schwert,1977;KeimandStambaugh,1986;Campbell,1987;FamaandFrench, 1989).

1,838 citations

12 Nov 2004

47 citations

01 Jan 1997
Abstract: Five-Sigma Event The Two Wise Men Mr.Market and the Lemmings Buying a Business Permanent Holdings Fixed-Income Marketable Securities Equity Marketable Securities A Few More Good Stocks An Unreasonable Man Appendix Notes Index.

42 citations

01 Dec 1997
Abstract: Benjamin Graham reigns as one of the greatest investment thinkers of the 20th century. Author of the bestseller Security Analysis, he has influenced many Wall Street legends including Warren Buffett, Mario D, John Neff and John Bogle. Now, readers can discover Storage and Stability, his 1937 study on supply and demand, production and consumption, and their impact on value investing. A rare glimpse into Graham's social theories and their impact on his investing strategies, this book ushers in the new Benjamin Graham Classics series, and will earn a coveted place on any investor's bookshelf.

26 citations

01 Jan 2006
Abstract: Two years ago, following a July 1999 speech by Warren Buffett, chairman of Berkshire Hathaway, on the stock market--a rare subject for him to discuss publicly--FORTUNE ran what he had to say under the title Mr Buffett on the Stock Market (Nov 22, 1999) His main points then concerned two consecutive and amazing periods that American investors had experienced, and his belief that returns from stocks were due to fall dramatically Since the Dow Jones Industrial Average was 11194 when he gave his speech and recently was about 9900, no one yet has the goods to argue with him

24 citations

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