Welp, It's been a week and I've come a lot farther than I actually imagined I would. I actually have a topic now!!!!!!!!
Well, kind of. I know the general direction to look into at least. After my creative barf session last week and reading some of the comments left by other people in the research class, I realized that I should continue pursuing a project in finance along the lines of analyzing stock valuation measures.
But how? After looking through google scholar, I depressingly found a study from 2012 that essentially conducted the exact study that I had thought of. So that idea was out the window... After searching more through google scholar as well as Columbia and Wharton Business Journals, I found a path that was promising: improving stock valuation measures. To those that are reading this post right now, the topic might seem like another huge open area, but I've done some more research and found some possible leads into what I can do. I found a 2005 article titled "The Long Term Price Earnings Ratio" by Kieth Anderson from the University of Reading. In the study, Anderson managed to improve the incredibly common price/ earnings ratio, a valuation measure commonly applied to stocks, by simply managing to extend the measure of the companies earnings over long-term periods rather than short-term periods. Using this, Anderson attempted to explain the reason for the Price/ Earnings effect, a common effect in finance where stocks with lower price/ earnings ratio (value stocks) generally outperformed stocks with higher price/ earnings ratios (growth stocks) over the long term. A similar measure to the price /earnings ratio, the price / book value ratio, holds similar anomalies as found by Fairfield and Harris in 1993. This could actually lead me to a highly specific topic on applying a method similar to Anderson to the price/ book value to test whether the measure could be improved. In the coming week, I plan to perform more research upon the prevalence of analysis on the price/ book ratio in finance literature. Another possible lead, which is less developed that I am looking into is the CAPM, capital asset pricing model. Essentially, the model claims that riskier stocks that outperform risk-free stocks due to higher market volatility (beta). However, in a study done on this, over a long term period in the 1970's-90's, it was determined that beta was not a substantial reason for why these stocks outperformed risk-free stocks. I have not read much literature on the CAPM, so in the next week I should read more into this to test if improving the CAPM is a viable option.
For now, much of my work in parsing through the literature is determining an appropriate stock valuation method to improve, and once doing so, what aspects could possibly be troubling for the valuation method. In this avenue, I am looking at two papers by researchers Fama and French, which appear to be fundamental to the entire discussion that I am about to engage in. I will read these papers first thing in the coming week, and hopefully be able to focus my search on improvements in valuation methods further.
Going forward, I plan on searching different business journals, JSTOR, EBSCO, and google scholar for more finance articles pertaining to specific valuation measures, and ways to improve valuation measures. At this point, the purpose of my literature review seems to be establishing a valuation measure to analyze and an aspect of the measure to improve upon. Based on this, I can find articles more pertinent to the ideas I have expressed before, and more that are circulating through my head. Once I have read an article, I will go through any cited sources that are of interest and need to me, and in such a way, I can finally begin to construct a solid research topic and question. (648)
Signing off,
Akash
Well, kind of. I know the general direction to look into at least. After my creative barf session last week and reading some of the comments left by other people in the research class, I realized that I should continue pursuing a project in finance along the lines of analyzing stock valuation measures.
But how? After looking through google scholar, I depressingly found a study from 2012 that essentially conducted the exact study that I had thought of. So that idea was out the window... After searching more through google scholar as well as Columbia and Wharton Business Journals, I found a path that was promising: improving stock valuation measures. To those that are reading this post right now, the topic might seem like another huge open area, but I've done some more research and found some possible leads into what I can do. I found a 2005 article titled "The Long Term Price Earnings Ratio" by Kieth Anderson from the University of Reading. In the study, Anderson managed to improve the incredibly common price/ earnings ratio, a valuation measure commonly applied to stocks, by simply managing to extend the measure of the companies earnings over long-term periods rather than short-term periods. Using this, Anderson attempted to explain the reason for the Price/ Earnings effect, a common effect in finance where stocks with lower price/ earnings ratio (value stocks) generally outperformed stocks with higher price/ earnings ratios (growth stocks) over the long term. A similar measure to the price /earnings ratio, the price / book value ratio, holds similar anomalies as found by Fairfield and Harris in 1993. This could actually lead me to a highly specific topic on applying a method similar to Anderson to the price/ book value to test whether the measure could be improved. In the coming week, I plan to perform more research upon the prevalence of analysis on the price/ book ratio in finance literature. Another possible lead, which is less developed that I am looking into is the CAPM, capital asset pricing model. Essentially, the model claims that riskier stocks that outperform risk-free stocks due to higher market volatility (beta). However, in a study done on this, over a long term period in the 1970's-90's, it was determined that beta was not a substantial reason for why these stocks outperformed risk-free stocks. I have not read much literature on the CAPM, so in the next week I should read more into this to test if improving the CAPM is a viable option.
For now, much of my work in parsing through the literature is determining an appropriate stock valuation method to improve, and once doing so, what aspects could possibly be troubling for the valuation method. In this avenue, I am looking at two papers by researchers Fama and French, which appear to be fundamental to the entire discussion that I am about to engage in. I will read these papers first thing in the coming week, and hopefully be able to focus my search on improvements in valuation methods further.
Going forward, I plan on searching different business journals, JSTOR, EBSCO, and google scholar for more finance articles pertaining to specific valuation measures, and ways to improve valuation measures. At this point, the purpose of my literature review seems to be establishing a valuation measure to analyze and an aspect of the measure to improve upon. Based on this, I can find articles more pertinent to the ideas I have expressed before, and more that are circulating through my head. Once I have read an article, I will go through any cited sources that are of interest and need to me, and in such a way, I can finally begin to construct a solid research topic and question. (648)
Signing off,
Akash
Akash, don't forget your word count! Also, I think you've gotten pretty far in terms of specificity, but I agree that you'll need to further narrow the scope of your research. I like what Ved brought up today about perhaps catering a valuation model toward a specific context in which the valuation would occur. Does that make sense? I hope so -- I'm trying to talk about something that I have very little knowledge on. As you do research in your literature review, I'll learn with you and be able to talk more on the subject. Until then, you'll have to be patient with me.
ReplyDeleteI would also look for sources that speak to the importance/significance of improving valuation measures.
Hey Akash,
ReplyDeleteI really like your topic, as it has the potential to blend your interests in finance, math, and computer science in a very interesting and significant (valuable, if you will?) way. In class, you said that you would be able to do the research largely on your own because of access to data and other valuation methods. I think you should be careful with approaching the problem too much on your own, since your research will be most significant if you use the most modern, up-to-date valuation software/method (e.g., maybe a new one has arisen since 2005). The best way to do this would be to contact an expert (could even be someone different than your ASU prof).
Additionally, is there a difference between the valuation methods used in research and for the actual stock market? This relates to my point in class about access to methods, since it ends up being the essence of a financial company's livelihood and success.
Just some stuff to consider. Love your project and your vision!
Cheers
YP
(177)
DeleteWell well well Akash Samant I think your topic is super cool, especially considering your specific interests and strengths! Like Yash said, I really think that you've managed to combine what you like and are good at into an excellent topic idea. Also, you should definitely try and reach out to get as good software and stuff as possible, once again reiterating what Yash said, because no man is an island and you should really have someone else to help you!! So, moving past just basically retweeting Yash, I think you should really find a way to make your own voice stand out in this topic and in the academic conversation. Do use Anderson's study as a starting point, but you should really find a new way to look at evaluation methods. Maybe you could look deeply into one company and their stocks, using different evaluation methods and seeing what the best aspects are from each model? That way you could kind of propose your own mishmash of what the best aspects of each model are.
ReplyDelete(Word Count: 176)