Does duration of competitive advantage drive long-term returns in the stock market?

• Autor(a) principal: Forsyth, Juan A.
• Data de Publicação: 2022
• Outros Autores: Mongrut, Samuel
• Tipo de documento: Artigo
• Idioma: eng; por
• Título da fonte: Revista Contabilidade & Finanças (Online)
• Texto Completo: https://www.revistas.usp.br/rcf/article/view/197234
• topic: stock market; return on equity (ROE); implied cost of capital; long-term returns; competitive advantage; mercado de ações; retorno sobre o patrimônio líquido (return on equity – ROE); custo implícito de capital; retornos de longo prazo; vantagem competitiva

The purpose of this article was to develop a new indicator to estimate the aggregate long-term expected return on stocks. Thereis not a widely used method to model directly the aggregated expected return of the stock market. Most current methods useindirect approaches. We developed a new indicator that does not need an econometric model to generate expected returnsand provides an estimate of the long-term expected returns. The proposed methodology can be used to develop an indicatorof future returns of the stock market similar to the yield-to-maturity used for bonds. We used a restricted one-stage constantgrowthmodel – a variant of the residual income model (RIM) – whose main input is the duration of companies’ competitiveadvantage and cyclical adjusted real return on invested capital (ROIC) with a 10-year average. We used a new methodologyto develop an indicator of the long-term expected return on the equity market at the aggregate level, considering the durationof the competitive advantage of companies. Our results showed a strong correlation between the estimated implied returnon equity (IRE) of current stock prices and realized returns of the 10-year real total return of the index.