Does duration of competitive advantage drive long-term returns in the stock market?
ABSTRACT The purpose of this article was to develop a new indicator to estimate the aggregate long-term expected return on stocks. There is not a widely used method to model directly the aggregated expected return of the stock market. Most current methods use indirect approaches. We developed a new...
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| Format: | Article |
| Language: | English |
| Published: |
Universidade de São Paulo
2022-04-01
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| Series: | Revista Contabilidade & Finanças |
| Subjects: | |
| Online Access: | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772022000200329&tlng=pt |
| _version_ | 1811292061296492544 |
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| author | Juan A. Forsyth Samuel Mongrut |
| author_facet | Juan A. Forsyth Samuel Mongrut |
| author_sort | Juan A. Forsyth |
| collection | DOAJ |
| description | ABSTRACT The purpose of this article was to develop a new indicator to estimate the aggregate long-term expected return on stocks. There is not a widely used method to model directly the aggregated expected return of the stock market. Most current methods use indirect approaches. We developed a new indicator that does not need an econometric model to generate expected returns and provides an estimate of the long-term expected returns. The proposed methodology can be used to develop an indicator of future returns of the stock market similar to the yield-to-maturity used for bonds. We used a restricted one-stage constant-growth model - a variant of the residual income model (RIM) - whose main input is the duration of companies’ competitive advantage and cyclical adjusted real return on invested capital (ROIC) with a 10-year average. We used a new methodology to develop an indicator of the long-term expected return on the equity market at the aggregate level, considering the duration of the competitive advantage of companies. Our results showed a strong correlation between the estimated implied return on equity (IRE) of current stock prices and realized returns of the 10-year real total return of the index. |
| first_indexed | 2024-04-13T04:39:47Z |
| format | Article |
| id | doaj.art-942a7a3c0eac4d4f8c5ab11a0f4c0b6e |
| institution | Directory Open Access Journal |
| issn | 1808-057X |
| language | English |
| last_indexed | 2024-04-13T04:39:47Z |
| publishDate | 2022-04-01 |
| publisher | Universidade de São Paulo |
| record_format | Article |
| series | Revista Contabilidade & Finanças |
| spelling | doaj.art-942a7a3c0eac4d4f8c5ab11a0f4c0b6e2022-12-22T03:02:02ZengUniversidade de São PauloRevista Contabilidade & Finanças1808-057X2022-04-01338932934210.1590/1808-057x202113660Does duration of competitive advantage drive long-term returns in the stock market?Juan A. Forsythhttps://orcid.org/0000-0003-0376-8093Samuel Mongruthttps://orcid.org/0000-0003-2081-5576ABSTRACT The purpose of this article was to develop a new indicator to estimate the aggregate long-term expected return on stocks. There is not a widely used method to model directly the aggregated expected return of the stock market. Most current methods use indirect approaches. We developed a new indicator that does not need an econometric model to generate expected returns and provides an estimate of the long-term expected returns. The proposed methodology can be used to develop an indicator of future returns of the stock market similar to the yield-to-maturity used for bonds. We used a restricted one-stage constant-growth model - a variant of the residual income model (RIM) - whose main input is the duration of companies’ competitive advantage and cyclical adjusted real return on invested capital (ROIC) with a 10-year average. We used a new methodology to develop an indicator of the long-term expected return on the equity market at the aggregate level, considering the duration of the competitive advantage of companies. Our results showed a strong correlation between the estimated implied return on equity (IRE) of current stock prices and realized returns of the 10-year real total return of the index.http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772022000200329&tlng=ptstock marketreturn on equity (ROE)implied cost of capitallong-term returnscompetitive advantage |
| spellingShingle | Juan A. Forsyth Samuel Mongrut Does duration of competitive advantage drive long-term returns in the stock market? Revista Contabilidade & Finanças stock market return on equity (ROE) implied cost of capital long-term returns competitive advantage |
| title | Does duration of competitive advantage drive long-term returns in the stock market? |
| title_full | Does duration of competitive advantage drive long-term returns in the stock market? |
| title_fullStr | Does duration of competitive advantage drive long-term returns in the stock market? |
| title_full_unstemmed | Does duration of competitive advantage drive long-term returns in the stock market? |
| title_short | Does duration of competitive advantage drive long-term returns in the stock market? |
| title_sort | does duration of competitive advantage drive long term returns in the stock market |
| topic | stock market return on equity (ROE) implied cost of capital long-term returns competitive advantage |
| url | http://www.scielo.br/scielo.php?script=sci_arttext&pid=S1519-70772022000200329&tlng=pt |
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