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Valuation of the worldwide commodities sector

Valuation of the worldwide commodities sector PurposeThis paper aims to empirically investigate the market-to-book/return on equity valuation model.Design/methodology/approachThe authors use a worldwide commodities sector panel of 6,323 firms from 69 countries with annual observations from 1999 to 2010 to estimate panel ordinary least squares (OLS), instrumental variables (IV) and quantile regressions. They also measure the impact of return on equity on market-to-book uncovering value versus growth and positive versus negative profitability dimensions.FindingsThe new evidence is that the impact of return on equity on market-to-book is time-varying and declining across the years in the sample. There is positive and strong persistence in the market-to-book of companies in this sector worldwide, but value stocks are more persistent than growth stocks. The coefficient of return on equity is positive at the 10th percentile of the market-to-book, but it becomes negative for growth stocks at 90th percentiles. Conditional on negative profitability, the coefficient of return on equity on market-to-book is negative for growth stocks. The effect of the S&P500 volatility index (VIX) is negative, significant and large in magnitude, but declines in absolute value, as the quantiles increase toward the upper 90th percentile.Practical implicationsThe commodities sector is important for countries that depend on it for development.Originality/valueThe paper provides a rich panel data approach, and the market-to-book/return on equity valuation model is naturally applied to the commodities sector, as this sector tends to have more tangibles relative to intangibles. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Economics and Finance Emerald Publishing

Valuation of the worldwide commodities sector

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1086-7376
DOI
10.1108/SEF-04-2016-0095
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper aims to empirically investigate the market-to-book/return on equity valuation model.Design/methodology/approachThe authors use a worldwide commodities sector panel of 6,323 firms from 69 countries with annual observations from 1999 to 2010 to estimate panel ordinary least squares (OLS), instrumental variables (IV) and quantile regressions. They also measure the impact of return on equity on market-to-book uncovering value versus growth and positive versus negative profitability dimensions.FindingsThe new evidence is that the impact of return on equity on market-to-book is time-varying and declining across the years in the sample. There is positive and strong persistence in the market-to-book of companies in this sector worldwide, but value stocks are more persistent than growth stocks. The coefficient of return on equity is positive at the 10th percentile of the market-to-book, but it becomes negative for growth stocks at 90th percentiles. Conditional on negative profitability, the coefficient of return on equity on market-to-book is negative for growth stocks. The effect of the S&P500 volatility index (VIX) is negative, significant and large in magnitude, but declines in absolute value, as the quantiles increase toward the upper 90th percentile.Practical implicationsThe commodities sector is important for countries that depend on it for development.Originality/valueThe paper provides a rich panel data approach, and the market-to-book/return on equity valuation model is naturally applied to the commodities sector, as this sector tends to have more tangibles relative to intangibles.

Journal

Studies in Economics and FinanceEmerald Publishing

Published: Oct 2, 2017

References