投资回报率

This Chapter This chapter explains what returns are, distinguishes normal and abnormal returns, and explains how analysts specialize in forecasting normal and abnormal returns
Chapter 6 Understanding how forecasts of income statements and balance sheets produce a valuation
With this understanding proceed to · Analysis of information (Part II) · Forecasting and Valuation (Part III)
Link to Next Chapter Chapter 4 will show how valuation models are constructed to measure the value of forecasted returns
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What you will learn in this chapter
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
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?
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For an investment in equity:
P0 Initial Price 1 2 3 T-1 T
Investment Horizon: When stock is sold
0
d1 d2 d3 dT-1 P T+d T Selling Price (if sold at T) + Dividend at T
The required return is also called the normal return or the cost of capital
Hewlett-Packard: Returns for 1991
_____________________________________________________________ Hewlett-Packard Company: Returns for 1991 Required return is 12% Price at end of 1991 1991 Dividend 1991 Payoff Price at end of 1990 1991 Return Rate of return = = Normal return: $26 x .12 Abnormal return Abnormal rate of return = = $24.855/26.0 95.6% 3.120 21.735 21.735/26.00 83.6% $50.375 .480 50.855 26.000 24.855
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
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P1 d1 P0 P0 1
If If
P1 d1 P0 P0 1
then SELL
BUY
P1 d1 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)
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
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:
T
For a changing term structure it would be
1 2 3 T

Dividends for the intermediate years can be reinvested at . The accumulated value at year T of reinvested dividends is called terminal value of dividends at T
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If the price paid for a swenku.baidu.comock is
P0 P1 d1
(expected payoff discounted at the required payoff per dollar, , the stock is appropriately priced: the market price is efficient
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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
Dividends
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For a one-year equity investment

Payoff: P1 d1 Return: P1 d1 P0 Rate-of-Return: P1 d1 P0 P0 Expected Return: P1 d1 P0 Expected Rate-of-Return: P1 d1 P0 P0 Required Payoff per dollar: Required Rate-of-Return: 1
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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 0 CF 1 CF2 CF3 CF T-1 CFT Initial Investm ent 1 2 3 T -1 T Term inal Cash Flow Cash Flows Investm ent Horizon: T
1 P1 d1 P0 P0
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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Or, price is efficient if it equals the expected return capitalized at the required rate-of-return:
P0 P1 d1 P0 1
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Or, today’s price (P0) must be such that the required rate-of-return, -1, will equal the (expected) rate-ofreturn :
Rate of return = 95.6% 12.0 Normal return Abnormal rate of return = 83.6% ____________________________________________________________
The No Arbitrage Condition (NA)
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Location of prices
1. Cross-sectional Arbitrage Different prices for the same commodity at the same point in time 2. Intertemporal Arbitrage Different prices for the same commodity at different points in time