Practical Applications of Value Investing Through the Lens of Campbell–Shiller

Abstract

The search for formal ways to assess the value of equities dates back to the publication of Graham and Dodd’s Security Analysis in 1934. Since then, investors have explored a wide range of methods for determining the current value of a stock and predicting future returns. Jack Mo of P. Schoenfeld Asset Management and Xiao Qiao of the University of Chicago’s Booth School of Business illustrate how the Campbell–Shiller present-value identity can be applied in the real world. A surprising conclusion from their research is that using a well-known academic construct produces the same results as those sought by value investors.

“This work on the Campbell–Shiller identity offers a compelling example of why academics and practitioners should communicate and collaborate together to develop new models and methods for the investment community as a whole,” Mo urges.

TOPICS: Statistical methods, security analysis and valuation