Table 5.
Valuation versus Gordon factors
| Variables | (1) | (2) | (3) | (4) | (5) | (6) | (7) |
|---|---|---|---|---|---|---|---|
| P/E | P/B | D/P | w | k | 1 − b | w, k | |
| Panel A: return in initial downmarket | |||||||
| ΔP/E | 0.391** | ||||||
| (0.140) | |||||||
| ΔP/B | 0.282*** | ||||||
| (0.0786) | |||||||
| ΔD/P | − 445.7*** | ||||||
| (− 0.207) | |||||||
| + Δw | 5.151*** | 7.069** | |||||
| (0.170) | (0.233) | ||||||
| + Δk | 3.520** | − 2.164 | |||||
| (0.122) | (− 0.0749) | ||||||
| + Δ1 − b | − 1.399 | ||||||
| (− 0.0512) | |||||||
| Constant | − 29.93*** | − 29.85*** | − 28.87*** | − 31.38*** | − 31.14*** | − 29.66*** | − 31.20*** |
| Observations | |||||||
| Industry FE | 405 | 405 | 405 | 405 | 405 | 405 | 405 |
| Adjusted R2 | 0.301 | 0.292 | 0.320 | 0.309 | 0.298 | 0.288 | 0.309 |
| Panel B: return in extended downmarket (including V-shaped recovery) | |||||||
| ΔP/E | 0.450** | ||||||
| (0.150) | |||||||
| ΔP/B | 0.355*** | ||||||
| (0.0922) | |||||||
| ΔD/P | − 518.5*** | ||||||
| (− 0.224) | |||||||
| + Δw | 5.109*** | 11.04*** | |||||
| (0.156) | (0.338) | ||||||
| + Δk | 2.187 | − 6.688** | |||||
| (0.0705) | (− 0.216) | ||||||
| + Δ1 − b | 0.547 | ||||||
| (0.0186) | |||||||
| Constant | − 15.66*** | − 15.55*** | − 14.42*** | − 17.11*** | − 16.46*** | − 15.91*** | − 16.56*** |
| Observations | 405 | 405 | 405 | 405 | 405 | 405 | 405 |
| Industry FE | Y | Y | Y | Y | Y | Y | Y |
| Adjusted R2 | 0.248 | 0.240 | 0.271 | 0.251 | 0.236 | 0.232 | 0.260 |
This table shows the effect of a change in valuation factors P/E, P/B, and D/P as compared to a positive change in the Gordon factors w, k, and 1 − b on stock returns during the initial market downturn induced by the COVID-19 crisis (February 19 till March 23, 2020) in Panel A. The same factors and their effect on stock returns during the extended downmarket including the V-shaped recovery (February 19, 2020 till April 30, 2020) are shown in Panel B. Columns (1) through (3) show the result of simple ordinary least-squares (OLS) regressions of stock returns on the change in P/E, P/B, and D/P. Columns (4) through (7) the results of OLS regressions of stock returns on positive changes in discount rate, +Δk, implied growth, +Δw, and the payout ratio, +Δ1 − b, all changes measured over the period starting December 31, 2019 and ending April 30, 2020. Dummy variables are used to estimate the effects of a positive change in implied growth, +Δw, and discount rate, +Δk. The dummy variables take the value of one if the change is positive, zero otherwise. Robust normalized beta coefficients are shown in parenthesis. These indicate the effect size of the Gordon factors and tell how much of a standard deviation in stock returns change for each standard deviation change in the Gordon factors. We use industry categorical variables to account for industry fixed effects. The communication services industry is used as the base and the factor results and beta weights for industries are shown as differences to this base.
Significance is denoted by ***p<0.01, **p<0.05, *p<0.1