Value Premiums in the Japanese Stock Market: B/M vs. E/P Factor

2014 Fiscal Year Final Research Report

• Project/Area Number: 24530363
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Multi-year Fund
• Section: 一般
• Research Field: Public finance/Monetary economics
• Research Institution: Tokyo University of Science
• Principal Investigator: HIRAKI Takato 東京理科大学, 経営学部, 教授 (50208815)
• Research Collaborator: WATANABE Akiko University of Alberta ; WATANABE Masahiro University of Alberta
• Project Period (FY): 2012-04-01 – 2015-03-31
• Keywords: 株式投資戦略 / バリュー効果 / B/M効果 / 経営者予想利益 / 予想P/E効果

Outline of Final Research Achievements

We examine the economic value of management earnings forecasts by taking advantage of the unique corporate disclosure practice in Japan where listed firms regularly announce earnings forecasts upon requests by stock exchanges and the press. A calendar-time strategy using the forecasted E/P ratio earns a premium comparable to, and separate from, the value premium based on the B/M ratio. The premium is robust to a variety of factor and characteristic adjustments including realized and forecasted earnings momentum. The result is consistent with a model in which risk-averse investors demand a discount over a firm's fundamental value that earnings forecasts reflect. The main paper, "Investment Value of Management Earnings Forecasts" by T. Hiraki, A. Watanabe, M. Watanabe (SSRN, 2013) has been under review by one of the top-tier finance journals while a few other papers derived from the this research have been published in two of the well-known finance journals, JCF (2014) and JBF(2015).

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