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A New Value-to-Price Anomaly and the Idiosyncratic Risk
Lee-Seok Hwang1; Byungcherl Charlie Sohn2
2014
Source PublicationKorean Accounting Review
ISSN1229-3288
Volume39Issue:2Pages:35-76
Abstract

This study documents the prominent role of idiosyncratic risk in impeding arbitrage activities with regard to a new value-to-price anomaly. Using the real-option-based valuation model, we measure the intrinsic value of a firm’s equity (Vo) by explicitly incorporating the shareholders’ abandonment option into the residual-income-based value estimate. This new value-to-price (Vo/P) ratio has a unique return predictability after controlling for previously known risk factors. We find that this “Vo/P anomaly” is exacerbated by theidiosyncratic risk to a greater extent than by any other arbitrage risk factor, especially when the probability of exercising the shareholders’ abandonment option is high.

KeywordAbandonment Option Value-to-price Anomaly Idiosyncratic Risk Arbitrage
DOIhttp://dx.doi.org/10.2139/ssrn.1497974
Indexed By其他
Language英语
WOS Research AreaBusiness & Economics
WOS SubjectAccounting
WOS IDKJD:ART001868567
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Citation statistics
Document TypeJournal article
CollectionDEPARTMENT OF ACCOUNTING AND INFORMATION MANAGEMENT
Affiliation1.College of Business Administration, Seoul National University
2.Department of Accounting and Information Management, University of Macau
Recommended Citation
GB/T 7714
Lee-Seok Hwang,Byungcherl Charlie Sohn. A New Value-to-Price Anomaly and the Idiosyncratic Risk[J]. Korean Accounting Review,2014,39(2):35-76.
APA Lee-Seok Hwang,&Byungcherl Charlie Sohn.(2014).A New Value-to-Price Anomaly and the Idiosyncratic Risk.Korean Accounting Review,39(2),35-76.
MLA Lee-Seok Hwang,et al."A New Value-to-Price Anomaly and the Idiosyncratic Risk".Korean Accounting Review 39.2(2014):35-76.
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