Study compares the accuracy of valuation methods of insurance companies
A study by Columbia Business School Professor Doron Nissim, Ernst & Young Professor of Accounting & Finance, reveals a better understanding of how investors value insurance companies. Two alternative approaches are typically used when estimating a company's equity value: fundamental valuation and relative valuation. Academic research and teaching tends to emphasize fundamental valuation models, although relative valuation models which typically involve price multiples, or ratios used to compare a company to a group of similar companies are much more common in practice. Unlike most prior studies, this research, forthcoming in the Review of Accounting Studies, examines the impact of industry-specific adjustments on the precision of estimated value relative to stock price.