NUS Quantitative Finance Joint Seminar Series (Webinar)

Prof Liuren Wu (City University of New York)

Abstract: The concept of market valuation relative to book cost has been used as the starting point for comparing relative performance, performing bottom-up valuation, and identifying profitable investment opportunities. This paper proposes a statistical factor model to explain the cross-sectional variation of company valuation relative to book cost. The factors are constructed to capture the principal dimensions of firm characteristics that drive the relative value variation. The factor loadings, estimated via cross-sectional regressions of company relative value on the factors at each point in time, represent the market pricing of the valuation factors at that point in time on the company's relative value. Historical analysis on U.S. publicly traded companies shows that the factor model explains a large proportion of the cross-sectional variation of company relative value across different sample periods and experiences little out-of-sample degeneration. The residual relative value variations unexplained by the factor model represent temporary company misvaluation, and can be exploited by both outside investors as attractive investment opportunities and internal management for market timing financing decisions.

Prof Omer Tamuz (California Institute of Technology)
Joint with Profs Xiaosheng Mu, Luciano Pomatto and Philipp Strack

Abstract: A statistic is a mapping from bounded random variables to real numbers. We characterize all statistics that are monotone with respect to first-order stochastic dominance, and are additive for sums of independent random variables. We explore a number of applications, including a representation of dynamically-consistent, monotone time preferences, generalizing Fishburn and Rubinstein (1982), and a characterization of posted prices for risks.