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Prices and dividends in CRSP
 Posted: 08 April 2015 07:50 AM [ Ignore ]
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A classic valuation model in finance is:

PRC = NI (net income) + BVE (book value of equity) + e.

Now I am wondering how the model is affected by dividends - is CRSP adjusting PRC for dividends (cum-dividend stock price)? Is it necessary to use adjusted prices in the model as dividends should be (negatively) included in BVE anyway?

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 Posted: 08 April 2015 11:08 AM [ Ignore ]   [ # 1 ]
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Found the answer - the cleanest model (OLS) is PRC + DIV = const. + NI + BVE(t-1) + e.

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 Posted: 08 April 2015 12:04 PM [ Ignore ]   [ # 2 ]
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Joined  2011-09-19

hi,

I’m glad you answered your question, but PRC seems to be a market value, while the other variables are accounting values. How will these add up?

Best,

Joost

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 Posted: 09 April 2015 01:32 AM [ Ignore ]   [ # 3 ]
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Sorry, this should be a empirical/regression model - i added intercept and error term that pick up the unexplained variation of (PRC+DIV).

An additional question regards price cum-dividend - the desciption in a paper is:

“P = stock price three month after fiscal year t (quarterly #14) plus dividends per share in year t (annual #26) adjusted for stock splits and dividends appropriate for the third month in fiscal year t+1.”

I am not entirely sure how to calculate that so I would go with: PRCCQ/AJEXQ (from q1) + DVPSX/AJEX (annual) ? or PRCCQ (q1) + DVPSX as both are already adjusted anyway? or PRCCQ (q1) + DVPSX(a)/AJEX(q1)? any other recommendations?

This adjusting for stock splits etc using ajex somehow confuses me - never sure if items are unadjusted or adjusted…

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