Topic_07_E2

Topic_07_E2 - Topic 7, Exercise 2 Reputation and Stock...

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Topic 7, Exercise 2 Reputation and Stock Valuation In January, 2000, a summary of research on performance of a firm’s stock relative to its reputation was published in the Federal Reserve Bank of New York’s Current Issues in Economics and Finance. The article, “Are High-Quality Firms Also High-Quality Investments?” analyzes performance of firms based on their reputation. The study differs from many other studies on high quality stocks in that reputation is measured by Fortune’s annual survey of “America’s Most Admired Companies.” After reading the article, answer the following questions: 1. How did the authors define “high-quality firms” in their study? How does that differ from previous studies on so called “glamour stocks?” Firms were defined as high-quality based on the Fortune ranking of the most admired companies. The authors used the Fortune rankings to break the sample firms into deciles, with the highest ranking firms placed in the top deciles. Prior studies of “glamour
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