投资回报率&股本价值&财务报表

This Chapter This chapter explains what returns are, distinguishes normal and abnormal returns, and explains how analysts specialize in forecasting normal and abnormal returns
The No Arbitrage Condition (NA)
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If the price paid for a stock is
P 0 P1 d 1
(expected payoff discounted at the required payoff per dollar, , the stock is appropriately priced: the market price is efficient
Link to Next Chapter Chapter 4 will show how valuation models are constructed to measure the value of forecasted returns
Link to Web Page
What you will learn in this chapter
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How various stock selection strategies have worked in the past
The Structure of Investment Returns
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For a terminal investment:
I0 Initial Investment 1 0 CF 1 CF 2 CF 3 CF T -1 CF T 2 3 T-1 T Terminal Cash Flow Investment Horizon: T
How are returns calculated? What is a normal return and an abnormal return? How might an analyst gain an advantage in forecasting normal or abnormal returns? What has been the historical experience in equity investing?
PART I
Investment Returns, Equity Value, and Financial Statements
Gaining the Understanding to do Fundamental Analysis
Chapter 3
Understanding investment returns and how analysts’ styles are determined by their approach to forecasting returns
Chapter 4 Understanding valuation models that value forecasted returns
Chapter 5 Understanding how earnings are related to returns and how valuations based on forecasted earnings work (or don’t work)
Chapter 3
Investment Returns
Investment Returns
Link to Previous Chapter Chapter 1 established that forecasting returns is at the heart of fundamental analysis
Cash Flows
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For an investment in equity:
P0 Initial Price 1 2 3 T-1 T
Investment Horizon: When stock is sold
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d1 d2 d3 dT-1 P T+d T Selling Price (if sold at T) + Dividend at T
1 P1 d 1 P 0 P 0
Required Rate-of-Return
Expected Rate-of-Return
Arbitrage Trading Strategies
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If NA holds, the market is efficient in that stock: there is no arbitrage opportunity Any discrepancy between expected and required rateof-return, is an arbitrage opportunity that, if exploited, will profit the arbitrage trader An arbitrage opportunity arises if
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How investment returns are calculated The difference between normal and abnormal returns
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What an efficient market price means
What an arbitrage opportunity is The difference between active and passive investment The difference between an alpha and a beta How asset pricing models work (in outline) How screening strategies work (and don’t work) What a contrarian strategy is How fundamental analysis differs from screening and contrarian analysis
The required return is also called the normal return or the cost of capital
Hewlett-Packard: Returns for 1991
_____________________________________________________________ H ew lett-P ack ard C o m p an y: R etu rn s fo r 1 9 9 1 R eq u ired retu rn is 1 2 % P rice 1991 1991 P rice 1991 at en d o f 1 9 9 1 D iv id en d P a yo ff at en d o f 1 9 9 0 R etu rn $ 2 4 .8 5 5 /2 6 .0 9 5 .6 % 3 .1 2 0 2 1 .7 3 5 2 1 .7 3 5 /2 6 .0 0 8 3 .6 % 9 5 .6 % 1 2 .0 $ 5 0 .3 7 5 .4 8 0 5 0 .8 5 5 2 6 .0 0 0 2 4 .8 5 5
R ate o f retu rn = = N o rm al retu rn : $ 2 6 x .1 2 A b n o rm al retu rn A b n o rm al rate o f retu rn = = R ate o f retu rn =
N o rm al retu rn A b n o rm al rate o f retu rn = 8 3 .6 % ____________________________________________________________
Types of Arbitrage
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Risk
1. Pure (Risk-Free) Arbitrage You get something for nothing, for sure 2. Expectational Arbitrage You have a better chance of an abnormal return than not
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P1 d 1 P0 P0
If If
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P1 d 1 P0 P0 1
then SELL
BUY
P1 d 1 P0 P0 1
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The difference is called the expected abnormal return and the rule can be restated as: BUY if the expected abnormal return is positive, and SELL if negative. If it is zero, do nothing (HOLD)
Multiyear Equity Investments
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These concepts apply to an investment for more than one period with two modifications:

The multiperiod rate-of-return will be the compounded annual rate. For a T-year period and a flat term structure, the required payoff is:
Dividends
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For a one-year equity investment