The informativeness of embedded value reporting to stock price

This paper examines the informativeness of embedded value reporting to stock price by investigating the cross‐sectional variations in life insurers’ price to embedded value ratios. By conducting variance decomposition analysis on a dataset provided by Morgan Stanley, we find that 15 percent (40 perc...

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Bibliographic Details
Published in:Accounting and finance (Parkville) 2021-12, Vol.61 (4), p.5341-5376
Main Authors: Fung, Derrick W. H., Jou, David, Shao, Ai Ju, Yeh, Jason J. H.
Format: Article
Language:English
Subjects:
Embedded value accounting
Informativeness
Insurer valuation
Life insurance
Price to embedded value ratio
Stock prices
Variance decomposition
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Summary:This paper examines the informativeness of embedded value reporting to stock price by investigating the cross‐sectional variations in life insurers’ price to embedded value ratios. By conducting variance decomposition analysis on a dataset provided by Morgan Stanley, we find that 15 percent (40 percent) of the difference between embedded value and stock price can be explained by growth opportunities and future stock returns in the short (long) run. One‐third and two‐thirds of the unexplained variation are attributed to firm‐ and country‐specific factors, respectively. The above findings provide investors with a better understanding of the value relevance of embedded value reporting.
ISSN:0810-5391
1467-629X
DOI:10.1111/acfi.12761