this is for holding javascript data
Pascal edited introduction.tex
almost 8 years ago
Commit id: e5b3e4ace36ba068bcb32fd955fe247a684d8d97
deletions | additions
diff --git a/introduction.tex b/introduction.tex
index fcdf8f9..1cf9110 100644
--- a/introduction.tex
+++ b/introduction.tex
...
\section{Introduction}
In a prior working paper, Pierre and al. have
demonstrated showed how to build a stock selection framework based on the profitability of a firm and its stock price valuation. This Profitability-Valuation framework is derived from the Residual Income Model (hereafter \textit{RIM}) which is in fact a derivation of the Dividend Discount Model (hereafter \textit{DDM}). In this context, Pierre and al. show that profitability is necessarely measured using Return On Equity (hereafter \textit{ROE}) while the valuation metric is necessarely the Price To Book (hereafter \textit{PB}). As such, screening for stocks using ROE and PB
consists in buying stocks that appear cheap from a dividend perspective or, more generally from an earnings perspective. En effet, dividends can be replaced by earnings as long as the clean surpplus accounting rule that underpins the RIM is observed.
\newline Drawbacks of the dividend or earnings approach to valuation are well known, and practitioners in the equity investment community tend to prefer cash-flow based valuation metrics.
$V_{t}=\displaystyle\sum_{i=1}^{K}\frac{C_{t+i}}{(1+R)^i}+V_{t+K}$