tag:blogger.com,1999:blog-6837159629100463303.post3929381359791333936..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: Stocks and k-states, part IVJason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6837159629100463303.post-30949978377364075982017-01-05T11:23:21.471-08:002017-01-05T11:23:21.471-08:00Gregor Semieniuk did something similar with profit...Gregor Semieniuk did something similar with <a href="http://informationtransfereconomics.blogspot.com/2016/07/a-statistical-equilibrium-approach-to.html" rel="nofollow">profit rates</a> so I imagine there are many possible ways to frame it -- some that would work better than others.<br /><br />The model above doesn't really use "book value" -- that was one way to bring up the idea of k-states (in terms of market cap and book value) but the main idea is that there is some fundamental variable X that grows at some rate ξ so that the market cap M grows at some rate μ = k ξ ... and the price p grows at some rate (k - 1) ξ.<br /><br />In the graph above (and the ones like it) X is NGDP and ξ is the NGDP growth rate. Basically, I took the "book value" to grow proportionally to the economy. The graph above uses cumulative return to measure the growth rate μ for each company so that μ/ξ = k (for each company).Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-18237468639929842682017-01-04T19:25:50.258-08:002017-01-04T19:25:50.258-08:00In the dividend discount model or discounted cash ...In the dividend discount model or discounted cash flow/earnings models of stock valuation, book value does not determine the current price of a security. One would assume there must be a dividend/earnings model of information transfer stock valuation as well, no? After all, book value can be subjective, and many finance types have questioned whether book value even means anything for software companies, e.g.Todd Zorickhttps://www.blogger.com/profile/10976192775890569092noreply@blogger.com