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Value and Profitability in International Markets

Professor Sunil Wahal, Ph.D., discusses the latest research on expected returns* with a focus on the joint relationship between value and profitability in international (ex-US) markets. This new work looks at developed and emerging markets over the 1990-2020 period, describing the risk and return tradeoffs available to long-only long-horizon investors.

 

* Expected Returns: Valuation theory shows that the expected return of a stock is a function of its current price, its book equity (assets minus liabilities) and expected future profits, and that the expected return of a bond is a function of its current yield and its expected capital appreciation (depreciation). We use information in current market prices and company financials to identify differences in expected returns among securities, seeking to overweight securities with higher expected returns based on this current market information. Actual returns may be different than expected returns, and there is no guarantee that the strategy will be successful.