A1679
Title: Cross-asset value
Authors: Florian Ielpo - Centre Economie de la Sorbonne (France)
Julien Royer - CREST (France) [presenting]
Abstract: A novel methodology is introduced for constructing a cross-asset value strategy through a time-series analysis, leveraging the fundamental premise that asset prices provide the most straightforward measure of valuation. We employ a classical trend-cycle decomposition of the logarithm of asset prices, approached in a model-driven manner. Various methodologies are explored for extracting value signals, with a particular focus on Hamilton's trend/cycle decomposition, to determine its efficacy in deriving value measures. These measures are subsequently utilized to construct a cross-asset value factor, applying consistent metrics across different asset classes. Our methodology is detailed within a general framework, accompanied by diverse empirical applications that demonstrate the practical utility of our approach. This strategy addresses the challenges analysts face in comparing valuations across different asset classes by proposing a unified method to compute such a value measure. The proposed approach is versatile, suitable for application across a broad spectrum of assets and risk premia.
