On the importance of asset pricing factors in the relative valuation

Skočir, Matevž (author), Lončarski, Igor (author)

In this study, we examine the implications of multi-factor asset pricing models in corporate valuation, focusing on the relative valuation approach. Our investigation centers around an eight-factor model, which we compare against traditional valuation methods that rely on industry or risk grouping and cross-sectional averages. The purpose of this comparison is to assess the efficacy of incorporating pricing factor variables into the valuation process and to understand their impact on valuation accuracy. The findings of our analysis suggest that the use of the eight-factor model leads to a reduction in estimation errors of valuation multiples, indicating an important improvement in precision compared to conventional valuation methods. Additionally, our research offers insights into the practicality of applying multi-factor models. It contributes to the intersection between empirical asset pricing and corporate finance by providing a detailed evaluation of advanced valuation models and their relevance in improving the accuracy of relative valuation.

• Language: English
• Keywords: enterprises, asset allocation, risk management, models, relative valuation, market multiples, multi-factor asset pricing models, valuation errors
• Work type: Article
• Typology: 1.01 - Original Scientific Article
• Organization: EF - School of Economics and Business
• Publication status: Published
• Publication version: Version of Record
• Year: 2024
• Number of pages: 18 str.
• Numbering: Vol. 70, pt. B, art. 102366
• PID: 20.500.12556/RUL-158418
• UDC: 336
• ISSN on article: 0275-5319
• DOI: 10.1016/j.ribaf.2024.102366
• COBISS.SI-ID: 194092547
• Publication date in RUL: 07.06.2024

Record is a part of a journal

• Title: Research in international business and finance
• Shortened title: Res. int. bus. financ.
• Publisher: Elsevier
• ISSN: 0275-5319
• COBISS.SI-ID: 512590361

Licences

• License: CC BY-NC 4.0, Creative Commons Attribution-NonCommercial 4.0 International
• Link: http://creativecommons.org/licenses/by-nc/4.0/
• Description: A creative commons license that bans commercial use, but the users don’t have to license their derivative works on the same terms.

Secondary language

• Language: Slovenian
• Keywords: podjetje, alokacija premoženja, obvladovanje tveganj, modeli

Projects

• Funder: ARRS - Slovenian Research Agency
• Project number: P5-0161
• Name: Izzivi vlagateljev, podjetij, finančnih institucij in države v negotovem evropskem gospodarskem okolju