We develop a firm-specific measure of valuation uncertainty from the distribution of valuations predicted by an empirical multiples-based valuation model. The measure is effective in summarizing the information in existing proxies and offers substantial incremental variation. Among many possible applications, we use our measure to test the hypothesis that valuation uncertainty is conducive to valuation mistakes. A value-like long-short strategy is particularly profitable among high valuation uncertainty stocks. Stocks in the short leg earn average returns indistinguishable from the risk-free rate – turning negative following periods of high investor sentiment – and their future earnings disappoint. Insiders trade against the presumed valuation mistakes.
Andrey Golubov is an Associate Professor of Finance at Rotman and has been with the School since 2015. Prior to Rotman he was a faculty member at Cass Business School in London and a visiting scholar at NYU Stern School of Business in New York. Andrey studies how firms make investment and financing decisions, particularly those involving corporate control considerations. His current research examines various aspects of mergers and acquisitions, corporate governance, and firm value and performance. Andrey's research on these topics is published in the Journal of Finance, Journal of Financial Economics, and the Review of Finance. Dr. Golubov is the 2020 recipient of the Bank of Canada Governor's Award and has been named as one of the Poets & Quants Top 40 Under 40 Business Professors. He currently teaches mergers and acquisitions in the MBA and executive education programs.
The seminar is held in English.
Attend the online event.