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Papers

An Eye on Profitability

By | Papers

Assessing profitability lies at the core of valuation and investment analysis, but it is far from straightforward.  The most widely reported measure of profitability is return on equity, or ROE.

Intangible Capital and Growth Options: The New Source of Value

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            When analyzing a company’s financial performance there are three things that need to be disentangled: (1) the difference between book and market values, (2) the difference between tangible capital that appears on the balance sheet and internally generated intangibles that do not, and (3) the difference between assets in place and growth options.  This note addresses these issues using data for Alphabet, a company that is a poster child for growth options and investment in intangibles.
 

The Value Effect and Stationarity

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Empirical studies routinely find that value stocks, defined as those with high book values compared to market value, outperform growth stocks with high market values relative to book value.  Though this may seem odd at first blush…

An Alternative Hypothesis to Market Efficiency

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On repeated occasions, Eugene Fama has claimed that critics have failed to offer a complete alternative to the efficient market hypothesis (EMH). More specifically, in his Noble speech, Fama said, “Most important, the behavioral literature has not put forth a full blown model for prices and returns that can be tested and potentially rejected – the acid test for any model proposed as a replacement for another model.” Here I argue that Fama’s complaint is too strong.

By Brad Cornell

Yes. It’s a Bubble. So What?

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With sky-high valuations in the US stock market, and what we believe is a tech bubble that has dangerous implications for other areas of the market, we suggest four actions investors can take now to avoid the inevitable bursting of the bubble, and which will likely benefit their portfolios’ long-term performance potential.

By Rob Arnott  Bradford Cornell  Shane Shepherd