Dr. Ali Saeedi, a Board member of Ayandeh Bank, delivered a lecture on common mistakes in financial research on 18 Sep. 2021.  He said sometimes you need to know the environment of the rules and regulations in the measurement of variables, as well as economic issues such as inflation and related issues in the financial assets market and the rules governing prices, and also not be unaware of the timing of the measurement method.

The lecturer mentioned in the social sciences, especially in the financial sciences, variable measurement is an important issue. However as human beings and limitations in the material world, we can manage something that we can measure, so financial variables can be managed at the same time as we can measure them. Now concepts like performance, return, risk, leverage, value size, transparency, information symmetry, and so on. These are abstract concepts. I mean, if I say the risk is high, so far we have a good understanding of the concept of risk.

He went on to say that a problem occurs because we need a precise definition and consequently a measurement. For example, I want to say that shares A and B have a risk, and you say which has a higher risk and that is where I have to measure the risk, and it is when I measure the risk that I get confused.

Dr Saeedi stated in a title, for example, you mention risk which must specify which risk is meant and which definition of risk is intended. Therefore we can say new methods of measuring financial variables are a part of progress in finance field.

However, if you make a mistake in the measurement method and do not use those precision measures, it can deviate the research result. Regarding the calculation of financial leverage, a common mistake that researchers make is to calculate debt ratio based on the ledger value and use it along with other variables based on current values.
Regarding the calculation of equity, Dr. Saeedi said sometimes in some articles, the Gordon equation method is used, which is not the correct method for calculating the cost of capital. Because in this method, stock price is used instead of stock value, which is correct only if the stock market has a strong performance, but in practice no market has this situation.

The important point is that in inflationary terms the replacement value is much larger than the asset ledger value; therefore, the Q ratio calculated at ledger value is much larger than the Q ratio calculated by the original method.