An Accounting-Based Measure of Valuation Uncertainty

Seminar summary

Existing measures of valuation uncertainty are indirect or available for limited samples. We use an accounting-based valuation model to estimate uncertainty as reflected in the shape of the distribution of intrinsic equity values. Our measure is effective in summarizing the information in existing proxies and offers substantial incremental variation. Among numerous possible applications, we test the hypothesis that valuation uncertainty is conducive to valuation mistakes. We show that a value-like long-short strategy is particularly profitable among high valuation uncertainty stocks. Stocks in the short leg earn average returns indistinguishable from the risk-free rate – turning negative following periods of high investor sentiment – and their future earnings disappoint. Insiders trade against the presumed valuation mistakes. Overall, our paper demonstrates how accounting information can be used to summarize uncertainty about intrinsic equity value.

How to attend this seminar

This seminar will take place on Wednesday 29 November at 2pm.

Welcome you to join us online

This seminar is free to attend with no need register in advance.

Speaker bio

Dr Sonia Konstantinidi 

Sonia Konstantinidi is a Senior Lecturer in Accounting at Bayes Business School (formerly Cass). Sonia’s research focuses on capital markets and equity valuation with reference to the role of accounting information in pricing. Her research has been published in leading journals, including the Journal of Finance and Contemporary Accounting Research. Sonia serves as a consultant in the investment management industry and as an Editorial Board Member of the European Accounting Review and the Journal of Business Finance and Accounting.