Common Risk Factors Versus a Mispricing Factor of Tokyo Stock Exchange Firms: Inquiries into the Fundamental Value Derived from Analyst Earnings Forecasts

摘要

We search for common factors and/or a mispricing factor for Tokyo Stock Exchange firms. We utilize the Edwards-Bell-Ohlson model to compute the firms' fundamental value and divide this value by the firms' market price to construct a new variable called a 'value-to-price ratio' (VPR). We find that this VPR variable can generate abnormal returns even after adjusting for the risk factors related to portfolio style differences. To find out whether it is indeed a risk factor or simply a characteristic, we construct return difference portfolios of the high VPR stocks minus the low value-to-price stocks and call this portfolio the upward-forecast minus downward-forecast (UMD) factor. Fama and MacBeth test indicate that the risk premium for this UMD factor is positive. The best model in terms of the adjusted R~2 value is the four-factor model in which the UMD factor is added to the Fama and French three factors. GMM Euler condition tests reveal that the UMD factor helps to price assets and that the four-factor model is not rejected. We conclude the VPR variable contains new information content that is not contained in the conventional Fama and French's three factors.