Acknowledgments xiii
About the Editors xv
About the Chapter Authors xvii
Chapter 1 Equity Markets, Valuation, and Analysis: An Overview 1
H. Kent Baker, Greg Filbeck and Halil Kiymaz
Introduction 1
About This Book 3
Structure of the Book 5
Summary and Conclusions 12
References 13
Part One Background
Chapter 2 Ownership Structure and Stock Classes 17
Christopher J. Barnes, Ehsan Nikbakht and Andrew C. Spieler
Introduction 17
Single-Class Common Equity 18
Dual-Class Common Equity 26
Summary and Conclusions 29
Discussion Questions 29
References 29
Chapter 3 Equity Markets and Performance 33
Jay T. Brandi and Xudong Fu
Introduction 33
The Equity Market and the Economy 35
Market Indicators 39
Good Markets - Liquidity 40
Good Markets - Efficiency 41
Information Disclosure 43
Enforcement 43
Monetary Policies 44
Investments: Comparative Risk and Return 44
Stocks Versus Bonds: The Issuer's Perspective 47
Summary and Conclusions 48
Discussion Questions 48
References 48
Chapter 4 Securities Regulation 51
Douglas Cumming and Sofia Johan
Introduction 51
Trading Rules and Rules Pertaining to Broker-Dealer Conduct 52
Surveillance 58
Enforcement 59
Impact of Trading Rules and Surveillance on Corporate Outcomes 59
Summary and Conclusions 60
Discussion Questions 61
References 61
Chapter 5 Investor Psychology and Equity Market Anomalies 63
Hunter M. Holzhauer
Introduction 63
Investor Psychology: Bounded Rationality 64
Investor Psychology: Prospect Theory 65
Equity Market Anomalies: Violations of the EMH 67
Summary and Conclusions 73
Discussion Questions 74
References 74
Part Two Valuation and Analysis
Chapter 6 Financial Statement Analysis and Forecasting 81
Somnath Das and Shailendra Pandit
Introduction 81
Background 82
Technical Analysis-Based Forecasting 83
Time Series-Based Forecasting 83
Fundamental Analysis-Based Forecasting 85
Process of Analyzing Financial Statements 85
Evidence on the Usefulness of Financial Statement Analysis 86
Security Analysts and Financial Statement Analysis 88
Limitations of Using Financial Statement Analysis in Forecasting 90
Summary and Conclusion 91
Discussion Questions 92
References 92
Chapter 7 Fundamentals of Equity Valuation 97
Emmanuel Boutron, Alain Coen and Didier Folus
Introduction 97
What is Equity Valuation? 97
Free Cash Flow-Based Valuation 101
Dividend-Based Valuation 104
Market-Based Valuation: Multiples and Ratios 106
Modeling the Required Asset Return 108
Option Theory-Based Valuation 110
Summary and Conclusions 111
Discussion Questions 111
References 111
Chapter 8 Company Analysis 113
David Craig Nichols
Introduction 113
Three Steps Linking Business Activities to Equity Prices 113
Accounting Analysis 117
Fundamental Analysis 119
Summary and Conclusions 127
Discussion Questions 127
References 127
Chapter 9 Technical Analysis 131
David Lundgren
Introduction 131
Background 131
Pulling It All Together: Fundamentals, Biases, and Trends 138
Summary and Conclusions 145
Discussion Questions 146
References 146
Chapter 10 Discounted Dividend Valuation 149
Elif Akben-Selcuk
Introduction 149
The General Model 149
Constant Growth or Gordon Model 150
Multistage Models 151
Stochastic Models 155
Uses of Ddms 158
Empirical Tests of the Dividend Discount Model 160
Summary and Conclusions 161
Discussion Questions 162
References 162
Chapter 11 Free Cash Flow Valuation 165
Tom Barkley
Introduction 165
General Approach to FCF Analysis 166
Four Special Cases of FCF Valuation Approaches 170
Summary and Conclusions 181
Discussion Questions 182
References 182
Chapter 12 Market-based Valuation 185
Sang Hoon Lee
Introduction 185
Widely Used Valuation Multiples and Valuation Steps 186
Selecting Comparable Firms 190
The Efficacy of Different Multiples in Valuation 191
Common Factors Determining Different Multiples 195
Summary and Conclusions 199
Discussion Questions 199
References 199
Chapter 13 Residual Income Valuation 201
Shailendra Pandit and Somnath Das
Introduction 201
History and Foundations of Residual Income 201
Computing Residual Income 203
Equity Valuation Using Residual Income 205
Numerical Example 206
Applying RI to Equity Valuation 207
Evaluation and Critique of Residual Income 208
Summary and Conclusions 211
Discussion Questions 212
References 212
Chapter 14 Private Company Valuation 215
Onur Bayar and Yini Liu
Introduction 215
DCF Valuation Methods for Private Companies 216
The Comparable Firms Approach in Private Company Valuation 220
The Venture Capital Method for High-Growth Private Companies 224
Option Valuation for Private Companies 226
Summary and Conclusions 227
Discussion Questions 227
References 228
Part Three Equity Investment Models and Strategies
Chapter 15 Equity Investing Strategies 231
Nicholas Biasi, Andrew C. Spieler and Raisa Varejao
Introduction 231
Value Investing 232
Growth Investing 233
Growth at a Reasonable Price 235
Income Investing 236
Index Investing 236
Quantitative Trading 237
Technical Analysis 238
Options Strategies 239
ESG Investing 240
Summary and Conclusions 241
Discussion Questions 242
References 242
Chapter 16 Factor Investing 243
Aaron Filbeck
Introduction 243
History 243
Factors of Prominence 246
Recent Factor Discoveries 253
Portfolio Implementation Considerations 256
Summary and Conclusions 259
Discussion Questions 260
References 260
Chapter 17 Smart Beta Strategies versus Alpha Strategies 263
Timoathy A. Krause
Introduction 263
What is Smart Beta? 265
Empirical Evidence from Factor Investing and Smart Beta Studies 267
Recent Empirical Evidence from the U.S. ETF Market 271
Summary and Conclusions 274
Discussion Questions 274
References 274
Chapter 18 Activist and Impact Investing 279
Michael Sinodinos, Andrew Siwo and Andrew C. Spieler
Introduction 279
Methods of Activism 280
Institutional Activists 281
Individual Activists 283
Impact Investing 284
Summary and Conclusions 289
Discussion Questions 289
References 289
Chapter 19 Socially Responsible Investing 291
Randolph D. Nordby
Introduction 291
A Brief History of SRI in the United States 292
ESG Growth in Pooled Investment Vehicles 293
Responsible Investing Growth by Institutional Investors 294
The Performance of Sustainable Investments 294
Lack of Guidelines on Voluntary Nonfinancial Disclosure 296
ESG Disclosure and Asset Manager Valuation Methodology 296
ESG Disclosure Lacks Usefulness 297
Methods for Operationalizing ESG Issues 297
Fiduciary Duty and ESG Investing 299
ESG Integration for Equities 300
Considerations for Integrating ESG 300
Case Study 301
Summary and Conclusions 302
Discussion Questions 302
References 303
Chapter 20 Pooled Investment Vehicles 305
Joseph McBride, Michael Pain and Andrew C. Spieler
Introduction 305
Open-End Mutual Funds 305
Closed-End Funds 309
Unit Investment Trusts 311
Exchange-Traded Funds 313
Summary and Conclusions 316
Discussion Questions 317
References 317
Part Four Special Equity Topics
Chapter 21 Investing in Private Equity 321
Gaurav Gupta, Tianqi Jiang and Zhao Wang
Introduction 321
Performance of PE Funds 322
Performance Persistence 324
Factors Driving PE Performance 325
Risk Factors of PE Funds 327
Summary and Conclusions 329
Discussion Questions 329
References 330
Chapter 22 Investing in Emerging Markets 333
Xiaohua Diao, Shantanu Dutta and Peng Cheng Zhu
Introduction 333
Capital Flows to Emerging Markets 334
Issues Related to Capital Market Integration 334
Institutional Strategies for Better Investment Decisions 336
Political Connections, Investment Decisions, and Performance 338
Corporate Governance and Performance 340
Valuation Practices in Emerging Markets 340
Summary and Conclusions 341
Discussion Questions 342
References 342
Chapter 23 Disclosure Regulations in Emerging Economies and Their Impact onEquity Markets 347
Xiaohua Diao, Shantanu Dutta and Peng Cheng Zhu
Introduction 347
Various Disclosure Regulation Approaches 348
Environmental and CSR Disclosure in Emerging Markets 349
Insider Trading, Disclosures, and Related Regulation 351
Information Disclosure Through Private In-House Meetings 354
Summary and Conclusions 356
Discussion Questions 357
References 357
Chapter 24 Equity Crowdfunding Investments 361
Dianna Preece
Introduction 361
Types of Crowdfunding 361
The Jobs Act of 2012 363
Crowdfund Investment Opportunities and Incentives 365
Crowdfund Investment Challenges and Disincentives 366
Academic Research 369
Summary and Conclusions 371
Discussion Questions 372
References 372
Discussion Questions and Answers (Chapters 2-24) 375
Index 407
