PhD Candidate, expected completion May 2012
Haas School of Business, University of California at Berkeley
- Equity valuation
- Time varying discount rates
- Role of accounting information in stock price formation
- Earnings quality
- Accounting for innovation and intangible assets
Job market paper
"Cash flow and discount rate news estimation: which method to choose?"
This paper documents that the VAR method of estimation of the Discount Rate News and Cash Flow News components of the stock return applied on the firm level produces results that are highly sensitive to the research design.
To alleviate these concerns, an alternative method of the news estimation is proposed. This method is based on Campbell and Shiller's (1988) return decomposition, but directly computes the Cash Flow News as a sum of the revisions in analysts' forecasts without relying on the VAR system as a modeling mechanism of the market expectations.
Empirical results provide evidence that direct computation of the Cash Flow News as the revisions in analysts' forecasts outperforms the VAR method. Conducted Monte-Carlo simulations suggest that the proposed method closely reflects true Cash Flow and Discount Rate news.