Stock recommendations from stochastic discounted cash flows

Arbeitspapier

This paper presents two stocks recommendation systems based on a stochastic characterization of firm present value that extends the conventional discounted cash flow analysis. In the Single-Stock Quantile recommendation system, the market price of a company's stocks is compared with the estimated distribution of the company fair value to obtain an individual measure of mispricing, while in the Cross-Sectional Quantile system, a relative measure of mispricing is built using the fair value distribution of all firms at the same time. Both systems use mispricing information to build sell side and buy side portfolios. We provide a series of statistical exercises that show how these portfolios can consistently deliver significant excess returns, also when rebalancing costs are accounted for.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: LEM Working Paper Series ; No. 2020/17

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Financial Forecasting and Simulation ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: Stochastic Discounted Cash Flow ; Asset Valuation ; Valuation Uncertainty ; Portfolio Strategy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bottazzi, Giulio ; Cordoni, Francesco ; Livieri, Giulia ; Marmi, Stefano
• Event: Veröffentlichung
• (who): Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM)
• (where): Pisa
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/228156
• Last update: 10.03.2025, 11:42 AM CET