Artikel
Value investing via Bayesian inference
Classic value investing à la Graham & Dodd (Security analysis: The classic, McGrawHill, New York, 1934) focuses on selecting stocks that seem cheap relative to their intrinsic value and fundamental quality. We use Bayesian inference to account for a large amount of uncertainty within intrinsic value estimation. We find that an undervalued‐minus‐overvalued factor that invests in cheap quality stocks and sells expensive junk stocks selected via Bayesian inference yields high risk‐adjusted returns and Sharpe ratios for equal‐weighted portfolios. We also find that using value‐weighted portfolios introduces size‐based dilutions and shifts the focus away from actual quality characteristics like profitability, payout, safety, and past growth. Our findings suggest that while the relative benefit of accounting for uncertainty via Bayesian inference is not large over shorter holding periods, it pays off for investment horizons longer than a month.
- Language
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Englisch
- Bibliographic citation
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Journal: Review of Financial Economics ; ISSN: 1873-5924 ; Volume: 41 ; Year: 2023 ; Issue: 4 ; Pages: 465-492 ; Hoboken, NJ: Wiley
- Classification
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Wirtschaft
- Subject
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Bayesian inference
financial statement analysis
residual income valuation
value investing
- Event
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Geistige Schöpfung
- (who)
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Huefner, Bernd
Rueenaufer, Marcel
Boesch, Martin
- Event
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Veröffentlichung
- (who)
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Wiley
- (where)
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Hoboken, NJ
- (when)
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2023
- DOI
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doi:10.1002/rfe.1185
- Last update
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10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Artikel
Associated
- Huefner, Bernd
- Rueenaufer, Marcel
- Boesch, Martin
- Wiley
Time of origin
- 2023
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